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  • Vern Edwards

    "Streamlining" the FAR

    By Vern Edwards

    The FAR has gotten lengthier every year. It never stops growing. I compared the Commerce Clearing House (CCH) edition of the FAR dated January 1, 2016 with the one dated January 1, 2017. The first was 2,208 pages long; the second is 2,296. And so it goes. The deeper that ocean gets, the murkier its depths become. Now, perhaps in response to Executive Order 13777, Feb. 24, 2017, the Defense Acquisition Regulations Council (DARC) and the Civilian Agency Acquisition Council (CAAC) want to “streamline” the FAR. The DARC has distributed a “case management record” within DOD calling for suggestions: The case management record goes on to say that any recommendations for cuts should state (1) whether a proposed cut implements statute or executive order, (2) the rationale for the recommendation, and (3) any potential cost savings or “burden reductions.” Good idea. I'm all for it. But the project needs a guiding principle or two. Let me make four suggestions. Do not recommend cutting or editing anything that implements statute or executive order. It would be complicated and take up too much time in debate. Delete everything that is merely tutorial or informative, not directive--everything that does not include the words must, shall, or may not  or that includes one of those terms only in connection with a general policy statement. Delete everything that duplicates rules promulgated by other agencies that have the primary statutory authority to do so and that is already covered in another place in the Code of Federal Regulations (CFR). Don’t bother clipping words, phrases, or sentences here and there in a lengthy text. Too much trouble. Focus on long passages that don’t require detailed editing. Now for an example. Consider FAR 16.104, “Negotiating Contract Type.” Here it is, with the text that I would delete in red. The “shall” in the first sentence of 16.103(b) is an example of what I call a nonspecific shall. It does not direct the contracting officer to do anything specific in any given instance, but only instructs him or her to keep a general principle in mind.  Here is another example of what I would delete, from FAR 15.404-1, “Proposal Analysis Techniques”: Note the nonspecific shalls in paragraph(b)(1). The material in red, which is merely tutorial, is already covered in the Contract Pricing Reference Guides, and Government personnel can be made familiar with it in training and directed to it by general reference. Now, here are two examples of text that needlessly covers ground already covered by other agencies in other places in the CFR: The text in red is already (and better) covered in 13 CFR Part 121. Although Title 13 uses the term “fair market price,” it does not define the term, so the definition in FAR 19.001 might be useful and should be retained. Now look at FAR 19.101, “Explanation of Terms,” which explains affiliates, annual receipts, and number of employees: I would delete the entire section. By statute, SBA gets to define those terms, which are better and more appropriately explained in 13 CFR §§ 121.102, 121.104, and 121.106. There are several other such texts in FAR. Look at FAR Part 22, in which the DARC and CAAC have sometimes done little more than restate rules promulgated by the Department of Labor, which are already stated in other titles of the CFR. For a specific example FAR 22.1003-4, “Administrative limitations, variations, tolerances, and exemptions.” That material is already covered in 29 CFR 4.123(e).  All that is needed in FAR is a reference to the appropriate regulations and supplemental directives about what contracting officers must do in application and compliance. Cutting the duplicate text will save the FAR councils from having to revise the FAR every time another agency changes its regulation. As it is now, every time the statutorily responsible agency changes its rules the FAR councils must then publish in the Federal Register to change the FAR, which is needless work. It will also prevent the possibility of conflicts between the FAR and the regulations promulgated by the statutorily responsible agencies and the confusion that is likely to ensue. Cutting the tutorial stuff will save paper. It will also make it clearer that rules are rules, but other stuff is just stuff. As for cutting the tutorials, the FAR should be a rulebook, not a textbook or guide for the perplexed. There will of course be people who will argue against such cuts on grounds that it will require contracting folk to look up other sources, and it is more convenient to include the information in the FAR to provide one-stop shopping, so to speak. There is merit to that argument, if you don’t mind navigating an ever increasingly voluminous and sometimes strange mixture of rules and stuff (guidance and tutorials) and if you don’t worry about conflicts in the coverage. Status quo is always available. Feel free to comment with your own recommendations.
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  1. The continuing legal battle over the constitutionality of the 8(a) program’s “socially disadvantaged” criteria may be on its way to the Supreme Court of the United States.

    Last September, we covered the decision of the United States Court of Appeals for the D.C. Circuit in Rothe Development, Inc. v. United States Department of Defense, 836 F.3d 57 (D.C. Cir. 2016), where a two-judge majority of the court concluded the 8(a) program did not violate Rothe’s equal protection rights under the Due Process Clause of the Fifth Amendment by establishing a racial classification.

    Now, Rothe has filed a Petition for Writ of Certiorari—a formal request that the Supreme Court review (and overturn) the D.C. Circuit’s decision.

    By way of background, the main question in Rothe is whether the 8(a) program violates the Fifth Amendment by granting contracting preferences on the basis of race. One of the essential questions in resolving any equal protection challenge is determining the level of scrutiny to which the challenged law will be subjected. Judges can apply three different intensities of scrutiny: rational basis, intermediate, and strict. Think of these like low, medium, and high scrutiny.

    Rational basis is the least intense of the scrutiny levels and applies to most laws. To survive a rational basis challenge, a law merely must bear some reasonable relation to a legitimate government interest. Needless to say, most laws reviewed under the “rational basis” test are upheld.

    Strict scrutiny, on the other hand, is the most intense level of scrutiny. To survive a strict scrutiny review, the challenged law must be narrowly tailored to meet a compelling government interest. Strict scrutiny is typically applied when a statute is not race-neutral on its face. Many laws do not survive a strict scrutiny review.

    In its September decision, the D.C. Circuit majority concluded the statute establishing the 8(a) program is race-neutral. As the court’s majority explained, “Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such.” Consequently, the D.C. Circuit concluded rational basis was the proper level of scrutiny to apply to the 8(a) statutes. Given the low bar set by rational basis review, the D.C. Circuit concluded the case met constitutional muster.

    Rothe’s petition for Supreme Court review challenges the D.C. Circuit’s application of rational basis. Rothe argues that the D.C. Circuit should have reviewed the statute under strict scrutiny, and should have found the statute to violate the Fifth Amendment.

    Rothe begins with the long-established principle that “drawing distinctions between citizens based on their race or ancestry is odious to a free people whose institutions are founded upon the doctrine of equality.” Rothe says that “the statutory provisions of the Section 8(a) program contain a paradigmatic racial classification because they distribute burdens and benefits on the basis of race.”

    Rothe makes several arguments in support of its petition.

    Rothe first argues the D.C. Circuit ignored the plain language of the statute, which Rothe says gives preferences to“’ocially disadvantaged individuals’ based upon ‘their identity as a member of a group without regard to their individual qualities.’” Rothe contends the statute establishes membership in certain racial minority groups as being indicative of social disadvantage; for this reason, Rothe says, the statute is not race-neutral.

    Rothe then takes issue with the D.C. Circuit’s holding that the portion of the statute identifying racial classifications was analogous to an unenforceable “preamble.” Rothe writes that the section of the statute containing this language “reads like a definitional section,” and was “voted on and passed” by Congress. Further, Rothe says, “a court should always review the entirety of a statute,” and the D.C. Circuit failed to do so.

    Next, Rothe says that the D.C. Circuit erred by finding that the statute was race-neutral because non-minorities are also eligible for the 8(a) program. Rothe concedes that non-minorities can be admitted to the 8(a) program, but writes that members of minority groups “receive an advantage over non-minorities based on their race.” Rothe continues: “this Court applies strict scrutiny whenever the government uses race as a factor in distributing burdens and benefits, regardless of whether race is the sole factor.”

    Rothe next dives into the legislative history of the 8(a) program, which Rothe says supports its position. For instance, Rothe writes that a 1978 House-Senate conference committee intended that “the primary beneficiaries of the program would be minorities.”

    Finally, Rothe contends that the D.C. Circuit misapplied the doctrine of constitutional avoidance. The doctrine of constitutional avoidance counsels that when a statute is open to multiple reasonable interpretations, courts should select the interpretation that does not present a constitutional issue. Rothe alleges that Section 8(a) is not ambiguous and that the D.C. Circuit had to contort the statutory language to apply the constitutional avoidance doctrine. As such, application of the doctrine was improper and led to the incorrect conclusion.

    Rothe concludes by arguing that its case is “an issue of nationwide importance.” Writes Rothe: “[t]here can be little doubt that government contracting is big business, even for small businesses.” Rothe notes that $16.6 billion in 8(a) contracts were awarded in 2015, and says that “when billions of dollars in government contracts are at stake, any preferential treatment has a nationwide, economic impact.”

    Now the big question: will the Supreme Court take Rothe’s case? If the Court declines to take the case, the D.C. Circuit’s ruling will stand, solidifying the 8(a) program’s constitutionality–at least for now. But if the Court takes the case, anything is possible.

    The raw numbers don’t look good for Rothe. As the Supreme Court’s website says, “[t]he Court receives approximately 7,000-8,000 petitions for a writ of certiorari each Term.  The Court grants and hears oral argument in about 80 cases.”

    But Rothe’s chances are probably a little better than those numbers would suggest. Rothe’s case presents a constitutional question affecting billions of dollars in government spending. And as the Supreme Court showed in 2015 with Kingdomware, it’s not afraid to take on a major government contracting case.

    Continue to check back at SmallGovCon as we keep an eye on the developments in Rothe.


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  2. Bid Protests: Protester’s Costs for Filing Bid Protest Denied Even Where Agency Does Not Dispute a Meritorious Protest | Centre Law & Consulting in Tysons, VA
     
    In a recent GAO decision, Boise Cascade Wood Products, LLC, B-413987.2 (Apr. 3, 2017), the GAO denied a small business’ request for reimbursement of the costs of filing and pursing a bid protest where the protester argued that the agency unduly delayed taking corrective action in the face of a clearly meritorious protest.

    In this matter, the protester pursued a protest against the Forest Service, which involved both a timber sale and a procurement of services. Specifically, the Forest Service issued a solicitation for a forest stewardship contract, which typically also involves the sale of timber or forest products and the performance of certain services. What gives this decision its interesting twist is that the Forest Service’s implementing regulations provide that when the value of timber removed through the contract exceeds the total value of the services, it shall be considered a contract for the sale of property.

    As a general matter, sales by a federal agency are not procurements of property or services and are not within the GAO’s bid protest jurisdiction. However, the GAO will consider protests concerning sales by a federal agency if that agency has agreed in writing to have protests decided by the GAO; the Forest Service has expressly agreed to this, creating a non-statutory agreement with the GAO.

    In this case, as the value of the timber significantly exceeded the value of the services, the agency determined to solicit the contract as a timber sale. As such, the GAO found that the cost reimbursement request was precluded by its regulations, which establish that it will not recommend the payment of protest costs in connection with non-statutory protests.

    About the Author:

    Heather Mims | Centre Law & Consulting in Tysons VA Heather Mims
    Associate Attorney

    Heather Mims is an associate attorney at Centre Law & Consulting. Her practice is primarily focused on government contracts law, employment law, and litigation. Heather graduated magna cum laude from the George Mason School of Law where she was the Senior Research Editor for the Law Review and a Writing Fellow.

     

    The post Costs for Filing Bid Protest Denied Even When Agency Does Not Dispute a Meritorious Protest appeared first on Centre Law & Consulting.


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  3. Government agencies use the Request for Proposal process to find the best available solution to their needs at the most competitive price. In competitive bidding, an agency has a duty to reject proposals that are non-responsive or that fail to comply with the invitation to bid in a material way. This promotes objectivity and fairness in the bidding process and ensures that vendors are competing on an equal footing.

    In too many cases, contractors expend considerable time and effort developing a proposal that the contracting agency ultimately rejects as non-compliant or non-responsive. Part 1 outlines the standard format of RFPs. Part 2 outlines steps you can take to avoid such costly errors and increase your chances of winning.

    As you write your proposal, keep these grading factors top of mind. The agency is telling you what is important to them. Believe them!

    Preparing Your Proposal

    As you write your proposal, make sure to:

    • Sign and acknowledge all amendments to the original RFP.
    • Submit questions to clarify any ambiguities created in the original Q&A or by amendments. If you are assuming something, ask the question! Clarifying questions rarely expose your strategy. Ask one question per ambiguity – the government will likely only answer one of them. Make sure to phrase questions to elicit clear answers
    • Watch out for RFPs that include provisions for full and open as well as set-aside awards. Clarify any proposal requirements not clearly designated as applying to one group or both, and clarify the applicability of contract clauses to each group.
    • Prime contractors need to conduct a cost or price analysis and include results of the analysis in your proposal.
      • You may need to submit subcontractor certified cost or pricing data as part of a prime proposal.
      • If you are a subcontractor, you may need to submit pricing faster and assist in the analysis process.
    • Primes should request information from subcontractors, including:
      • System adequacy letters.
      • Disclosure of proposed profit.
      • In Federal Financial Participation (FFP) contracts, disclose labor hours and categories.
    • Subcontractor disclosures
      • Although it is okay for primes to request full disclosure, it is equally okay for subs to insist on sealed packages.
      • The prime should be clear about what is required in sanitized and sealed packages. Do not assume the sub has read the RFP requirements!
    • Subs should always read the full RFP, even if the prime sends a summary RFP.
    • If the government does not provide a method for subcontractors to submit directly to them, request that subcontractors provide sealed packages.

    Best Practices for Responsive Proposals

    Read the RFP. Then read it again, and again. Read it all the way through at least once. You may focus on key areas the first time, but consider reading out of order in subsequent reviews to reduce fatigue when reaching Schedules L and M. Keep an eye out for RFP amendments, and read those as well.

    Craft a proposal that directly and efficiently addresses the agency’s needs. Stop focusing on telling your story and start focusing on telling the story the RFP is requesting of you. Remember, a great conversationalist is someone who listens. The best consultants and sales people do not talk about their product or service. They talk about you and solving your problems.

    Prepare a compliance matrix. Your matrix should document general requirements such as format and due date as well as requirements for each volume. Update the compliance matrix to stay current with amendments.

    Hold a proposal kick-off meeting.  Invite your teammates, and identify critical milestones and due dates. Delegate responsibilities as needed, and provide templates if available. Designate one or more people to be responsible for regularly checking for amendments.

    Avoid math errors or other inconsistencies. Use rounding formulas in all calculations. Ensure that someone other than the person who prepared the price proposal prints out and manually checks all figures on a calculator.

    Ensure your proposal arrives on time! In most cases, agencies will reject late proposals out of hand, so don’t wait until the last minute to finish your proposal.

    If your proposal must be hand-carried, prepare a delivery receipt and obtain a signature, date, and time of delivery from the person accepting your proposal package.

    For online submissions, ensure that your firm is registered and able to post its proposal on the web site. If permitted, do a test submission to make sure you are able to submit documents successfully. Submit your proposal 24 hours before the due date, and no later than 5pm the day before to comply with FAR 15.208(b). After your submission, print out a copy of the web site delivery notification or receipt. When submitting by email, use read receipt in your email program. Ask the contracting officer if there is a file size limit for submitting via email. If your proposal exceeds that limit, you may need to break it into multiple parts.

    Conduct a final review. Have independent parties to the proposal process perform a final check for compliance.

    Questions for Your Proposal

    Before submitting your proposal, ask yourself these questions:

    • Is it formatted correctly?
    • Is your bid organized and easy to follow?
    • Is your solution plausible?
    • Have you demonstrated your ability to perform?
    • Have you presented an acceptable delivery schedule?
    • Are you proposing a reasonable price?
    • Have you had someone spell check, grammar check and error check?
    • Have you printed or produced the required number of proposals?

    Crafting responsive proposals is both a science and an art. There’s much more to the process than we can cover in a single blog post. If you have questions about responsive proposals or any other aspect of the RFP process, call (614) 556-4415 or email robert@leftbrainpro.com.

    The post Best Practices for Preparing Responsive Proposals – Part 2 appeared first on Left Brain Professionals.


    leftbrainpro.com

  4. The FAR has gotten lengthier every year. It never stops growing. I compared the Commerce Clearing House (CCH) edition of the FAR dated January 1, 2016 with the one dated January 1, 2017. The first was 2,208 pages long; the second is 2,296. And so it goes. The deeper that ocean gets, the murkier its depths become.

    Now, perhaps in response to Executive Order 13777, Feb. 24, 2017, the Defense Acquisition Regulations Council (DARC) and the Civilian Agency Acquisition Council (CAAC) want to “streamline” the FAR. The DARC has distributed a “case management record” within DOD calling for suggestions:

    Quote

     

    We have an opportunity to provide recommendations fro streamlining the FAR and/or DFARS.

    If you wish to participate by providing input recommending a deletion or other streamlining recommendation for a specific  portion of the FAR and/or DFARS, please submit your recommendation by April 12….

     

    The case management record goes on to say that any recommendations for cuts should state (1) whether a proposed cut implements statute or executive order, (2) the rationale for the recommendation, and (3) any potential cost savings or “burden reductions.”

    Good idea. I'm all for it. But the project needs a guiding principle or two. Let me make four suggestions.

    1. Do not recommend cutting or editing anything that implements statute or executive order. It would be complicated and take up too much time in debate.
    2. Delete everything that is merely tutorial or informative, not directive--everything that does not include the words must, shall, or may not  or that includes one of those terms only in connection with a general policy statement.
    3. Delete everything that duplicates rules promulgated by other agencies that have the primary statutory authority to do so and that is already covered in another place in the Code of Federal Regulations (CFR).
    4. Don’t bother clipping words, phrases, or sentences here and there in a lengthy text. Too much trouble. Focus on long passages that don’t require detailed editing.

    Now for an example. Consider FAR 16.104, “Negotiating Contract Type.” Here it is, with the text that I would delete in red.

    Quote

     

    16.103 Negotiating contract type.

    (a) Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.

    (b) A firm-fixed-price contract, which best utilizes the basic profit motive of business enterprise, That  be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. However, when a reasonable basis for firm pricing does not exist, other contract types should be considered, and negotiations should be directed toward selecting a contract type (or combination of types) that will appropriately tie profit to contractor performance.

    (c) In the course of an acquisition program, a series of contracts, or a single long-term contract, changing circumstances may make a different contract type appropriate in later periods than that used at the outset. In particular, contracting officers should avoid protracted use of a cost-reimbursement or time-and-materials contract after experience provides a basis for firmer pricing.

    (d)(1) Each contract file shall include documentation to show why the particular contract type was selected. This shall be documented in the acquisition plan, or in the contract file if a written acquisition plan is not required by agency procedures.

    (i) Explain why the contract type selected must be used to meet the agency need.

    (ii) Discuss the Government’s additional risks and the burden to manage the contract type selected (e.g., when a cost-reimbursement contract is selected, the Government incurs additional cost risks, and the Government has the additional burden of managing the contractor’s costs). For such instances, acquisition personnel shall discuss −

    (A) How the Government identified the additional risks (e.g., pre-award survey, or past performance information);

    (B) The nature of the additional risks (e.g., inadequate contractor’s accounting system, weaknesses in contractor's internal control, non-compliance with Cost Accounting Standards, or lack of or inadequate earned value management system); and

    (C) How the Government will manage and mitigate the risks.

    (iii) Discuss the Government resources necessary to properly plan for, award, and administer the contract type selected (e.g., resources needed and the additional risks to the Government if adequate resources are not provided).

    (iv) For other than a firm-fixed price contract, at a minimum the documentation should include −

    (A) An analysis of why the use of other than a firm-fixed-price contract (e.g., cost reimbursement, time and materials, labor hour) is appropriate;

    (B) Rationale that detail the particular facts and circumstances (e.g., complexity of the requirements, uncertain duration of the work, contractor’s technical capability and financial responsibility, or adequacy of the contractor’s accounting system), and associated reasoning essential to support the contract type selection;

    (C) An assessment regarding the adequacy of Government resources that are necessary to properly plan for, award, and administer other than firm-fixed-price contracts; and

    (D) A discussion of the actions planned to minimize the use of other than firm-fixed-price contracts on future acquisitions for the same requirement and to transition to firm-fixed-price contracts to the maximum extent practicable.

    (v) A discussion of why a level-of-effort, price redetermination, or fee provision was included.

    (2) Exceptions to the requirements at (d)(1) of this section are −

    (i) Fixed-price acquisitions made under simplified acquisition procedures;

    (ii) Contracts on a firm-fixed-price basis other than those for major systems or research and development; and

    (iii) Awards on the set-aside portion of sealed bid partial set-asides for small business.

     

    The “shall” in the first sentence of 16.103(b) is an example of what I call a nonspecific shall. It does not direct the contracting officer to do anything specific in any given instance, but only instructs him or her to keep a general principle in mind. 

    Here is another example of what I would delete, from FAR 15.404-1, “Proposal Analysis Techniques”:

    Quote

     

    (b) Price analysis for commercial and non-commercial items.

    (1) Price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit. Unless an exception from the requirement to obtain certified cost or pricing data applies under 15.403-1(b)(1) or (b)(2), at a minimum, the contracting officer shall obtain appropriate data, without certification, on the prices at which the same or similar items have previously been sold and determine if the data is adequate for evaluating the reasonableness of the price. Price analysis may include evaluating data other than certified cost or pricing data obtained from the offeror or contractor when there is no other means for determining a fair and reasonable price. Contracting officers shall obtain data other than certified cost or pricing data from the offeror or contractor for all acquisitions (including commercial item acquisitions), if that is the contracting officer’s only means to determine the price to be fair and reasonable.

    (2) The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price. Examples of such techniques include, but are not limited to, the following:

    (i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price (see 15.403-1(c)(1)(i)).

    (ii) Comparison of the proposed prices to historical prices paid, whether by the Government or other than the Government, for the same or similar items. This method may be used for commercial items including those “of a type” or requiring minor modifications.

    (A) The prior price must be a valid basis for comparison. If there has been a significant time lapse between the last acquisition and the present one, if the terms and conditions of the acquisition are significantly different, or if the reasonableness of the prior price is uncertain, then the prior price may not be a valid basis for comparison.

    (B) The prior price must be adjusted to account for materially differing terms and conditions, quantities and market and economic factors. For similar items, the contracting officer must also adjust the prior price to account for material differences between the similar item and the item being procured.

    (C) Expert technical advice should be obtained when analyzing similar items, or commercial items that are “of a type” or requiring minor modifications, to ascertain the magnitude of changes required and to assist in pricing the required changes

    (iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry.

    (iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements.

    (v) Comparison of proposed prices with independent Government cost estimates.

    (vi) Comparison of proposed prices with prices obtained through market research for the same or similar items.

    (vii) Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the offeror.

    (3) The first two techniques at 15.404-1(b)(2) are the preferred techniques. However, if the contracting officer determines that information on competitive proposed prices or previous contract prices is not available or is insufficient to determine that the price is fair and reasonable, the contracting officer may use any of the remaining techniques as appropriate to the circumstances applicable to the acquisition.

    (4) Value analysis can give insight into the relative worth of a product and the Government may use it in conjunction with the price analysis techniques listed in paragraph (b)(2) of this section.

     

    Note the nonspecific shalls in paragraph(b)(1).

    The material in red, which is merely tutorial, is already covered in the Contract Pricing Reference Guides, and Government personnel can be made familiar with it in training and directed to it by general reference.

    Now, here are two examples of text that needlessly covers ground already covered by other agencies in other places in the CFR:

    Quote

     

    19.001 Definitions.

    As used in this part—

    “Concern” means any business entity organized for profit (even if its ownership is in the hands of a nonprofit entity) with a place of business located in the United States or its outlying areas and that makes a significant contribution to the U.S. economy through payment of taxes and/or use of American products, material and/or labor, etc. “Concern” includes but is not limited to an individual, partnership, corporation, joint venture, association, or cooperative. For the purpose of making affiliation findings (see 19.101), include any business entity, whether organized for profit or not, and any foreign business entity, i.e., any entity located outside the United States and its outlying areas.

    “Fair market price” means a price based on reasonable costs under normal competitive conditions and not on lowest possible cost (see 19.202-6).

    “Industry” means all concerns primarily engaged in similar lines of activity, as listed and described in the North American Industry Classification System (NAICS) manual.

    “Nonmanufacturer rule” means that a contractor under a small business set-aside or 8(a) contract shall be a small business under the applicable size standard and shall provide either its own product or that of another domestic small business manufacturing or processing concern (see 13 CFR 121.406).

     

    The text in red is already (and better) covered in 13 CFR Part 121. Although Title 13 uses the term “fair market price,” it does not define the term, so the definition in FAR 19.001 might be useful and should be retained.

    Now look at FAR 19.101, “Explanation of Terms,” which explains affiliates, annual receipts, and number of employees:

    Quote

     

    19.101 Explanation of terms.

    As used in this subpart—

    “Affiliates.” Business concerns are affiliates of each other if, directly or indirectly, either one controls or has the power to control the other, or another concern controls or has the power to control both. In determining whether affiliation exists, consideration is given to all appropriate factors including common ownership, common management, and contractual relationships; provided, that restraints imposed by a franchise agreement are not considered in determining whether the franchisor controls or has the power to control the franchisee, if the franchisee has the right to profit from its effort, commensurate with ownership, and bears the risk of loss or failure. Any business entity may be found to be an affiliate, whether or not it is organized for profit or located in the United States or its outlying areas.

    (1) Nature of control. Every business concern is considered as having one or more parties who directly or indirectly control or have the power to control it. Control may be affirmative or negative and it is immaterial whether it is exercised so long as the power to control exists.

    (2) Meaning of “party or parties.” The term “party” or “parties” includes, but is not limited to, two or more persons with an identity of interest such as members of the same family or persons with common investments in more than one concern. In determining who controls or has the power to control a concern, persons with an identity of interest may be treated as though they were one person.

    (3) Control through stock ownership.

    (i) A party is considered to control or have the power to control a concern, if the party controls or has the power to control 50 percent or more of the concern’s voting stock.

    (ii) A party is considered to control or have the power to control a concern, even though the party owns, controls, or has the power to control less than 50 percent of the concern’s voting stock, if the block of stock the party owns, controls, or has the power to control is large, as compared with any other outstanding block of stock. If two or more parties each owns, controls, or has the power to control, less than 50 percent of the voting stock of a concern, and such minority block is equal or substantially equal in size, and large as compared with any other block outstanding, there is a presumption that each such party controls or has the power to control such concern; however, such presumption may be rebutted by a showing that such control or power to control, in fact, does not exist.

    (iii) If a concern’s voting stock is distributed other than as described above, its management (officers and directors) is deemed to be in control of such concern.

    (4) Stock options and convertible debentures. Stock options and convertible debentures exercisable at the time or within a relatively short time after a size determination and agreements to merge in the future, are considered as having a present effect on the power to control the concern. Therefore, in making a size determination, such options, debentures, and agreements are treated as though the rights held thereunder had been exercised.

    (5) Voting trusts. If the purpose of a voting trust, or similar agreement, is to separate voting power from beneficial ownership of voting stock for the purpose of shifting control of or the power to control a concern in order that such concern or another concern may qualify as a small business within the size regulations, such voting trust shall not be considered valid for this purpose regardless of whether it is or is not valid within the appropriate jurisdiction. However, if a voting trust is entered into for a legitimate purpose other than that described above, and it is valid within the appropriate jurisdiction, it may be considered valid for the purpose of a size determination, provided such consideration is determined to be in the best interest of the small business program.

    (6) Control through common management. A concern may be found as controlling or having the power to control another concern when one or more of the following circumstances are found to exist, and it is reasonable to conclude that under the circumstances, such concern is directing or influencing, or has the power to direct or influence, the operation of such other concern.

    (i) Interlocking management. Officers, directors, employees, or principal stockholders of one concern serve as a working majority of the board of directors or officers of another concern.

    (ii) Common facilities. One concern shares common office space and/or employees and/or other facilities with another concern, particularly where such concerns are in the same or related industry or field of operation, or where such concerns were formerly affiliated.

    (iii) Newly organized concern. Former officers, directors, principal stockholders, and/or key employees of one concern organize a new concern in the same or a related industry or field operation, and serve as its officers, directors, principal stockholders, and/or key employees, and one concern is furnishing or will furnish the other concern with subcontracts, financial or technical assistance, and/or facilities, whether for a fee or otherwise.

    (7) Control through contractual relationships—

    (i) Definition of a joint venture for size determination purposes. A joint venture for size determination purposes is an association of persons or concerns with interests in any degree or proportion by way of contract, express or implied, consorting to engage in and carry out a single specific business venture for joint profit, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally. A joint venture is viewed as a business entity in determining power to control its management.

    (A) For bundled requirements, apply size standards for the requirement to individual persons or concerns, not to the combined assets, of the joint venture.

    (B) For other than bundled requirements, apply size standards for the requirement to individual persons or concerns, not to the combined assets, of the joint venture, if—

    (1) A revenue-based size standard applies to the requirement and the estimated contract value, including options, exceeds one-half the applicable size standard; or

    (2) An employee-based size standard applies to the requirement and the estimated contract value, including options, exceeds $10 million.

    (ii) HUBZone joint venture. A HUBZone joint venture of two or more HUBZone small business concerns may submit an offer for a HUBZone contract as long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract, provided one of the following conditions apply:

    (A) The aggregate total of the joint venture is small under the size standard corresponding to the NAICS code assigned to the contract.

    (B) The aggregate total of the joint venture is not small under the size standard corresponding to the NAICS code assigned to the contract and either—

    (1) For a revenue-based size standard, the estimated contract value exceeds half the size standard corresponding to the NAICS code assigned to the contract; or

    (2) For an employee-based size standard, the estimated contract value exceeds $10 million.

    (iii) Joint venture. Concerns submitting offers on a particular acquisition as joint ventures are considered as affiliated and controlling or having the power to control each other with regard to performance of the contract. Moreover, an ostensible subcontractor which is to perform primary or vital requirements of a contract may have a controlling role such to be considered a joint venturer affiliated on the contract with the prime contractor. A joint venture affiliation finding is limited to particular contracts unless the SBA size determination finds general affiliation between the parties. The rules governing 8(a) Program joint ventures are described in 13 CFR 124.513.

    (iv) Where a concern is not considered as being an affiliate of a concern with which it is participating in a joint venture, it is necessary, nevertheless, in computing annual receipts, etc., for the purpose of applying size standards, to include such concern’s share of the joint venture receipts (as distinguished from its share of the profits of such venture).

    (v) Franchise and license agreements. If a concern operates or is to operate under a franchise (or a license) agreement, the following policy is applicable: In determining whether the franchisor controls or has the power to control and, therefore, is affiliated with the franchisee, the restraints imposed on a franchisee by its franchise agreement shall not be considered, provided that the franchisee has the right to profit from its effort and the risk of loss or failure, commensurate with ownership. Even though a franchisee may not be controlled by the franchisor by virtue of the contractual relationship between them, the franchisee may be controlled by the franchisor or others through common ownership or common management, in which case they would be considered as affiliated.

    (vi) Size determination for teaming arrangements. For size determination purposes, apply the size standard tests in paragraphs (7)(i)(A) and (B) of this section when a teaming arrangement of two or more business concerns submits an offer, as appropriate.

    “Annual receipts.”

    (1) Annual receipts of a concern which has been in business for 3 or more complete fiscal years means the annual average gross revenue of the concern taken for the last 3 fiscal years. For the purpose of this definition, gross revenue of the concern includes revenues from sales of products and services, interest, rents, fees, commissions and/or whatever other sources derived, but less returns and allowances, sales of fixed assets, interaffiliate transactions between a concern and its domestic and foreign affiliates, and taxes collected for remittance (and if due, remitted) to a third party. Such revenues shall be measured as entered on the regular books of account of the concern whether on a cash, accrual, or other basis of accounting acceptable to the U.S. Treasury Department for the purpose of supporting Federal income tax returns, except when a change in accounting method from cash to accrual or accrual to cash has taken place during such 3-year period, or when the completed contract method has been used.

    (i) In any case of change in accounting method from cash to accrual or accrual to cash, revenues for such 3-year period shall, prior to the calculation of the annual average, be restated to the accrual method. In any case, where the completed contract method has been used to account for revenues in such 3-year period, revenues must be restated on an accrual basis using the percentage of completion method.

    (ii) In the case of a concern which does not keep regular books of accounts, but which is subject to U.S. Federal income taxation, “annual receipts” shall be measured as reported, or to be reported to the U.S. Treasury Department, Internal Revenue Service, for Federal income tax purposes, except that any return based on a change in accounting method or on the completed contract method of accounting must be restated as provided for in the preceding paragraphs.

    (2) Annual receipts of a concern that has been in business for less than 3 complete fiscal years means its total receipts for the period it has been in business, divided by the number of weeks including fractions of a week that it has been in business, and multiplied by 52. In calculating total receipts, the definitions and adjustments related to a change of accounting method and the completed contract method of paragraph (1) of this definition, are applicable.

    “Number of employees” is a measure of the average employment of a business concern and means its average employment, including the employees of its domestic and foreign affiliates, based on the number of persons employed on a full-time, part-time, temporary, or other basis during each of the pay periods of the preceding 12 months. If a business has not been in existence for 12 months, “number of employees” means the average employment of such concern and its affiliates during the period that such concern has been in existence based on the number of persons employed during each of the pay periods of the period that such concern has been in business. If a business has acquired an affiliate during the applicable 12-month period, it is necessary, in computing the applicant’s number of employees, to include the affiliate’s number of employees during the entire period, rather than only its employees during the period in which it has been an affiliate. The employees of a former affiliate are not included, even if such concern had been an affiliate during a portion of the period.

     

    I would delete the entire section. By statute, SBA gets to define those terms, which are better and more appropriately explained in 13 CFR §§ 121.102, 121.104, and 121.106.

    There are several other such texts in FAR. Look at FAR Part 22, in which the DARC and CAAC have sometimes done little more than restate rules promulgated by the Department of Labor, which are already stated in other titles of the CFR. For a specific example FAR 22.1003-4, “Administrative limitations, variations, tolerances, and exemptions.” That material is already covered in 29 CFR 4.123(e).  All that is needed in FAR is a reference to the appropriate regulations and supplemental directives about what contracting officers must do in application and compliance.

    Cutting the duplicate text will save the FAR councils from having to revise the FAR every time another agency changes its regulation. As it is now, every time the statutorily responsible agency changes its rules the FAR councils must then publish in the Federal Register to change the FAR, which is needless work. It will also prevent the possibility of conflicts between the FAR and the regulations promulgated by the statutorily responsible agencies and the confusion that is likely to ensue. Cutting the tutorial stuff will save paper. It will also make it clearer that rules are rules, but other stuff is just stuff.

    As for cutting the tutorials, the FAR should be a rulebook, not a textbook or guide for the perplexed.

    There will of course be people who will argue against such cuts on grounds that it will require contracting folk to look up other sources, and it is more convenient to include the information in the FAR to provide one-stop shopping, so to speak. There is merit to that argument, if you don’t mind navigating an ever increasingly voluminous and sometimes strange mixture of rules and stuff (guidance and tutorials) and if you don’t worry about conflicts in the coverage.

    Status quo is always available.

    Feel free to comment with your own recommendations.

  5. Of all areas in contracting, the one often taken most for granted, yet of vital importance, is that of the prime contractor/subcontractor relationship. We all know how much the requirements, contractual specifications, terms and conditions, and funding on a prime contract flow down the supply chain, but this flowdown doesn’t just happen. Although some may argue it’s as easy as placing clauses into a subcontract, it more complex than that. Subcontracting can exponentially increase the complexity of whatever product or service is to be delivered to the ultimate customer. 

    For all the attention placed on the customer and prime contract, all these same complex issues, and more, are placed on firms managing both ends of the subsequent subcontracting relationships at each successive tier. These firms may be competitors with each other in some respects, yet working for one another in other respects. Prime and subcontractors must develop tools and systems for tracking performance, compliance, and results—not only of themselves, but of each other. Creating these processes, systems, and documents defines their relationship and responsibilities. Determining the terms and conditions of what the prime needs—including what, how, where, and when—must be precisely articulated to ensure the sub delivers exactly what the prime customer asked for (as defined in the prime’s solicitation, the sub’s proposal, and subsequent (proper) communications). 

    Within both federal and commercial contracting, competitive pressures and expectations continue to dramatically increase. In most cases, everyone has increasing alternatives to go elsewhere if needed to get their requirements met. The prime customer, as we know, is obligated to flow down certain expectations, and to manage the increased pressures “downhill.” Within federal contracting, increased oversight and review of the managing of subcontracts or purchasing has increased from the contracting office to the Defense Contract Management Agency.

    As in all things, this comes down to people. While many of these activities lend themselves to automation, much also requires the ever-growing need for professionals with interpersonal skills—particularly relationship building. Hard and so-called “soft” skills (or competencies) such as contract management, pricing, written and verbal communication, knowledge of technology, research, finance, marketing, or general business acumen—as well as adaptability to change—are competencies no firm can short-change in the people that ensure this is done internally, or in representing itself to the outside business world.

    Subcontracting, supply chain, or purchasing managers; buyers, contract specialists, pricing specialists, estimators, or category managers—whatever the title, they are interrelated within the same overall profession. Whether on the buying or selling side, the prime or the subcontractor, the top-tier or several layers down the supply chain, this is as important a relationship and imperative a technical expertise as ever there was in how our economy is driven. 

    Within small businesses, it can be well argued that these activities are everyone’s responsibility. Whether it’s someone working in finance, information technology, law, or business development; even the CEO needs to understand and perform parts or all of these subcontract management functions.

    So what are you waiting for? The business that you may help thrive or just survive may be your own. Good Luck!

    Michael P. Fischetti

    Executive Director

    National Contract Management Association

    NCMA invites you and your colleagues to attend SubCon Training Workshops—NCMA’s new training event for subcontracting professionals—March 30–31, 2017, in Dulles, VA; offering four workshops, each with six sessions to choose from. Participants can choose their own schedule or come for two full days of training and networking. Learn more at www.ncmahq.org/subcon17

     

  6. In early 1977, Gordon Wade Rule (Rule) sat in a chair in a corner of a conference room at the Naval Material Command reading a document that I had prepared about his negotiations on the CGN-41, a nuclear-powered guided missile cruiser.  Days earlier, I was among a group that was briefed by a staff member of Admiral Hyman Rickover (Rickover), the Director of the Naval Nuclear Propulsion Program.  Although, the briefing was supposed to be about the CGN-41 negotiation, we were treated to a 3-hour lecture on how the Navy's shipbuilders were trying to "pin the rose" on Rickover. In this case, pinning the rose had nothing to do with the shipbuilders asking the Admiral to a prom.

    When I began writing this blog entry, I had planned to include only the work I had done decades ago for the Chairman, House Committee on Armed Services.  That work involved Rule's negotiation of Modification 31 to the contract that included the CGN-41, the eventual USS Arkansas. I wanted you to figure out if the modification that Rule signed was done in a manner that would allow it to survive a court test.  It took 2 courts to decide that question so it wasn't as easy as it sounded.  Unfortunately I read too much surrounding material and I realized that I was taking Rule's actions out of the context in which they happened back in the 1970s.  So, I added a bit more information.  You will see Rule as the contracting officer, Rickover as a program officer interfering with the contracting officer, Senator William Proxmire apparently acting for Rickover and himself, and Deputy Secretary of Defense William P. Clements, Jr. (Clements) trying to resolve the shipbuilding claims problem in any manner he could.  You cannot choose sides on this one.  All characters, including government agencies and shipbuilders, were trying to manipulate and influence anyone that became involved with the CGN-41.  It seemed as if sides were drawn by identifying the enemy of an individual's enemy.  

    A Brief Introduction to the Shipbuilding Claims Era

    In the early 1970s, cost overruns and shipbuilders' claims had become a major problem.  By 1976, it had reached epidemic proportions with $1.9 billion in shipbuilder claims.  The shipbuilders, the Navy, the Department of Justice, and Rickover were in a war.  In the case of the CGN-41, Newport News Shipbuilding and Drydock Company was the industry player.  

    Clements wanted to settle the ship claims problem with the use of P. L. 85-804.  A June 21, 1976, Business Week article explains his early effort.  The excerpt below is a quote from the article entitled:  The Shipbuilders Balk at 40 Cents on the Dollar.  The article explained that Clements had planned to settle $1.9 billion of shipbuilding claims against the Navy for "between $500 million and $700 million" but that plan fell fiat with the Navy's shipbuilders.  He explained that "the shipyards are giving me trouble."  The article further described:

    Quote

    On Apr. 30 Clements informed both the Senate and the House Armed Services Committees of his unusual plan to clear up long-pending claims, which he said are largely responsible for the "acrimonious and adversarial environment that now marks Navy-shipbuilders business relations." He promised the legislators a progress report on June 10. At the same time, he predicted privately that he would have the claims situation wrapped up by that date.

    The settlements would be under terms of Public Law 85-804, enacted by Congress in the early 1960s to enable the Defense Dept. to modify contracts when it is in the interest of national defense. The law was amended in 1973 to require that Congress be notified prior to use of the law for any modification exceeding $25 million and be given 60 days to disapprove.

    Clements intended to use this program to bypass traditional, drawn-out appeals board procedures and to wipe the slate clean of the massive extra dollar amounts demanded by shipbuilders to compensate them for such things as Navy-ordered design changes, late delivery of government-furnished equipment, and higher-than-anticipated inflation rates. But at midweek Clements was far short of his goal. The two shipyards with the bulk of the outstanding claims were reluctant to accept his offer of roughly 40¢ on the dollar in immediate cash.

    A lot of money. Tenneco Inc.'s Newport News Shipbuilding & Dry Dock Co. filed the largest of the outstanding claims-some $894 million. After meeting Wednesday morning with Clements, Newport News President John P. Diesel said: "We have failed. We can't get together on money, and the Navy has not done a damn thing about changing contracting procedures."

    After failing to reach a settlement himself, Clements called Navy management to his office for a meeting of the status of shipbuilding claims.  Nothing had been accomplished by them either.  He then focused on the CGN-41.  The work on this ship had been stopped by Newport News because of issues it was having with the Navy.  The contract was in court and work had started again under the condition that the Navy negotiated in good faith with Newport News to resolve the issues.  The court's time limit for good faith negotiations was running out and something had to be done.  Since the CGN-41 contract was in court, the Department of Justice was required to play a part in the review of any settlement proposed to the court.  

    This is where our story begins.  I have added the dates on which the actions occurred so that you can follow.  All facts are based on documents that I had reviewed in the 1970s or documents that I recently reviewed.  I needed to limit the length of this entry so I added enough information to give you a flavor of the times.  Sometime in the future, I may write a larger article.  Rule was appointed as a special contracting officer on the CGN-41 to resolve the issues that the Navy and the Secretary of Defense could not accomplish.  Undoubtedly he knew he was heading into a mighty storm that might harm him.  

    Contract Modification P00031 To CGN-41:  Chronology of Events

    July 13, 1976:  Clements held a meeting to discuss Navy shipbuilding claims.  Among those in attendance were:

    • Deputy Secretary of Defense (Clements)
    • Consultant to the Deputy Secretary of Defense
    • Assistant Secretary of the Navy (Installations and Logistics) (ASN (I & L))
    • Chief of the Naval Material Command (NAVMAT)
    • Vice-Chief of the Naval Material Command  (NAVSEA)
    • General Counsel of the Navy, and 
    • Gordon Rule, Director, Procurement Control and Clearance Division, Naval Material Command. (Rule)

    In regard to the Newport News claims, a member of the meeting quoted Clements as saying that he was "irrevocably committed to solving this problem; unlike Admiral Rickover."  Clements then asked the Navy officials why they had not reformed the contract, indicating that if they would not, he would.  He then stated that he wanted to see four changes incorporated in the CGN-41 contract:  (1)  a new escalation clause; (2) a new "changes" clause; (3) a new ceiling price; and (4) a new delivery date.  (emphasis added)

    During the meeting it was agreed that Rule would become negotiator for the CGN-41.  He was to report directly to the Chief, NAVMAT and the Vice Chief, NAVMAT was to meet with Clements each day at 9:15 a.m to report on the progress of the negotiation.

    July 14, 1976:  Rule telephoned Newport News to explain that he had been assigned principal negotiator on the CGN-41 and requested a meeting.

    July 15, 1976:  Newport News was contacted by a consultant to Clements who explained Rule's authority. Rule and Newport News held their first meeting.

    July 16, 1976:  The Assistant Secretary of the Navy (Installations and Logistics) wrote to the Chief, NAVMAT informing him that the Chief would be responsible for the direct discussions between Rule and Newport News.  Rule would be the principal negotiator and Rule would be assisted by NAVSEA and the Navy General Counsel, as required.

    July 16, 1976:  Rule sent a memo to Clements describing his first meeting with Newport News.  As a note, he mentioned that he intentionally did not contact the Navy's Supervisor of Shipbuiliding, Conversion and Repair (SUPSHIPS), Newport News.

    July 19, 1976:   Rule sent a memo to the Deputy Commander for Contracts, NAVSEA asking for brief descriptions of what the Navy considered as key issues for negotiation and the Navy's negotiating position so he could develop his own negotiation position.

    July 28, 1976:  The Vice Chief, NAVMAT and a consultant to Clements held discussions with Newport News.  Areas discussed were: when the CGN 41 problems would be solved, ceiling price, and escalation provisions.

    August 10, 1976:  Rule telephoned Newport News and requested a meeting in Washington on August 12,1976.

    August 12, 1976:  During a meeting in Washington between Rule and Newport News, Newport News left a general outline for negotiations.

    August 12 and 13, 1976:  The Vice Chief, NAVMAT asked Rule about the August 12 meeting so he could inform Clements.  Rule explained that Newport News had delivered a proposal and he did not approve of it.

    August 17, 1976:  Rule telephoned Newport News and requested a negotiating session to be held on August 20, 1976.

    August 19, 1976:  The Deputy Chief of Naval Material (Procurement and Production) issued Rule an appointment as Contracting Officer with "unlimited authority with respect to negotiations with Newport News."

    August 20, 1976:  Negotiations were held between Rule and Newport News.

    August 23, 1976:  The Vice Chief, NAVMAT and Rule met with Clements to brief him on the August 20th negotiations.  According to Rule, Clements' comment on the negotiations was "fine."  After the meeting with Clements, Rule received a note from the Chief, NAVMAT to meet him in the Office of the Assistant Secretary of the Navy (Installations and Logistics).  Among those attending were:

    • Assistant Secretary of the Navy (Installations and Logistics),
    • Chief, NAVMAT, 
    • Vice Chief, NAVMAT,
    • Rule, Director, Procurement Control and Clearance Division, Naval Material Command,
    • Commander, NAVSEA,
    • Deputy Commander for Contracts, NAVSEA,

    At this meeting, the Chief, NAVMAT ordered Rule to describe the results of the August 20 negotiations.

    August 24, 1976:  Rickover wrote to the Chief, NAVMAT that he had heard a rumor of a settlement on the CGN-41 between Rule and Newport News.  Rickover commented point-by-point about the rumored settlement and said such a settlement "would show that the Government will not require Newport News to honor its contracts."  Rickover recommended that any

    Quote

    settlement be referred formally to the Naval Sea Systems Command for review and comment by knowledgeable personnel directly responsible for the work in question. In this regard I [Rickover] will be glad to provide assistance based on my own knowledge of the events in question.

    August 24, 1976:  Senator William Proxmire wrote to the Attorney General, Department of Justice expressing concerns about Gordon Rule's views on the CGN-41 negotiations and telling the Attorney General:

    Quote

    I understand that the Department of Justice has sole responsibility within the Government for approving out-of-court settlements involving Government matters under litigation. I assume that the Justice Department will review any such settlements proposed by the Navy in the CGN-41 case. However. in view of the importance of the CGN-41 case to the overall shipbuilding claims problem, I request that you direct the Navy to keep you fully informed of any negotiations and that you review any settlement offer to ensure that it is on sound legal ground and in the public interest before the Government becomes a party to it.

    August 25, 1976:  Newport News telephoned Clements and read a prepared press release.  The consultant to Clements said he and Clements approved of the press release, an excerpt of which stated:  "The parties have agreed to sign a definitive contractual document embodying the negotiated agreement for the construction of the CGN-41."  Later that day, the Assistant Secretary of the Navy (Installation and Logistics) telephoned Newport News, informed them that he was perturbed by the Newport News press release and stated that the Navy would issue its own press release stating that agreement had been reached in principle but that the matter was to be reviewed by higher authority.  On this same date the Navy issued a press release explaining an "agreement in principle" was being drafted for review and approval.  (Emphasis added)

    August 26, 1976:  The Chief, NAVMAT sent Rickover a response to his August 24, 2016 letter stating:  

    Quote

    From your many, years in government service I know you realize that business sensitive negotiations should not be influenced by sources outside of the designated negotiating parties, and that a broadly distributed letter from you, such as reference (a) [August 24, 1976 memo from Rickover described above], cannot help but cause perturbation in the negotiating process, disrupting the efforts of the assigned negotiator. 

    The Chief, NAVMAT further wrote:  For reasons such as this, you must stand apart from these negotiations unless the technical areas regarding naval nuclear reactors become involved.

    August 27, 1976:  Rickover responded to the Chief's, August 26, 1976 letter to him.   In response to the wide distribution he used for his letter of August 24, 1976, Rickover explained that: 

    Quote

    I felt obliged to inform them of what I had heard. I am sure you are not implying that it is improper for me to call such matters to the attention of those responsible, and point out potential problems. To remain silent would be analogous to not warning my mother that she was about to fall off a cliff.

    He used the same distribution list for this 6-page letter as he did in his August 24, 1976 letter.

    August 30, 1976:  Newport News met with Rule in Washington and delivered the first draft of Modification P00031.

    The Chief, NAVMAT sent a letter to Rule explaining that, prior to a binding agreement on the CGN-41, the elements of the agreement must be submitted to the Chief, NAVMAT for review and approval.  The review was to be conducted by the Vice Chief, NAVMAT, the Deputy Chief, NAVMAT (Procurement and Production), the NAVSEA Deputy Commander for Contracts; and the General Counsel for the Navy.  Mr. Rule was to provide the proposed contract modification, the business clearance justifications, and other supporting papers for review prior to signature by the contracting officer.

    Gordon Rule forwarded a draft memorandum to the Chief, Naval Material that summarized his negotiations with Newport News.

    August 31, 1976:  The General Counsel of the Navy noted the Rule draft memorandum and told Rule of the General Counsel's responsibility to review the summary of negotiations.  Additionally, the General Counsel requested more information to support Rules' summary.

    September 1, 1976:  Rule sent a summary of his negotiations to the Chief, NAVMAT.

    September 3 1976:  In response to the August 31, 1976 memo from the Navy General Counsel, Rule sent him additional information supporting his summary of negotiations.  He also provided a copy of the first draft of Modification P00031.

    September 14, 1976:  Members of Rule's and Newport News negotiating teams and DCAA auditors met in Washington to discuss provisions in the first draft of Modification P00031.  DCAA was asked to review certain provisions of the proposed modification.

    September 16, 1976:  The Attorney General, Department of Justice, responded to Senator Proxmire's August 24th letter by writing:

    Quote

    Your letter requests that I direct the Navy to keep me fully informed of any negotiations and that I review any settlement offer to insure that it is on sound legal ground and in the public interest. The Justice Department intends to review any proposal and/or papers before submission to the court. We would request the court to approve any settlement only if we are satisfied that it is on sound legal ground and in the public interest.

    September 20, 1976:  NAVSEA's Deputy Commander for Contracts and a member of the "review team" submitted his analysis of the first draft to the Vice Chief, NAVMAT.  This analysis was not made available to Rule.

    September 24, 1976:  DCAA submitted its analysis of certain provisions of the first draft to a member of Rule's negotiating team.

    September 27, 1976:  Newport News delivered a second draft of the modification to Rule and Rule requested DCAA to review the draft.

    [September 28, 1976:  Clements wrote a letter to the Attorney General, Department of Justice, commenting on the August 24 letter of Senator Proxmire.  In regard to Rule, he wrote:

    Quote

    Senator Proxmire in his letter suggests that Mr. Gordon Rule is not impartial and that he might not act in the Government's interest but would so act as to undermine the Government's ability to enforce contracts. This is a serious charge by the Senator and defames both the character and competence of Mr. Rule. As I have indicated, it was at my suggestion that Mr. Rule was appointed by the Navy as the senior negotiator in the CGN-41 matter. I know Mr. Rule's background and work experience during his years as a Navy procurement official, and I am familiar with his current work as the CGN-41 negotiator. I consider Senator Proxmire's remarks regarding Mr. Rule ground-less, ill-tempered and unworthy of a member of the U.S. Senate.

    In regard to the Department of Justice's review of the CGN-41 negotiation, he said:  "Let me assure you that we in DoD have no intention to by-pass or withhold from your department any information which you determine that your department needs in connection with legal proceedings under the court order."

    September 28, 1976:  DCAA submitted its analysis of the second draft to Rule.  

    October 4, 1976:  NAVSEA submitted its estimate of the cost of the draft modification.  Rule rejected the NAVSEA estimate.

    October 5, 1976:  Rule submitted a memorandum to the Chief, NAVMAT for his approval.  It included the estimated dollar impact of his negotiated settlement.  For those in contracting, it would be similar to a negotiator's memorandum.  The Navy General Counsel sent its analysis of the information supplied by Rule to the Attorney General.  In the memorandum, Rule noted that a member of his negotiating team could not complete an analysis he requested because of interference from Rickover and his staff.  However, he was able to devise a workaround to complete his cost estimate of the modification for the Chief's review and approval.

    October 7, 1976:  Newport News carried a third draft of the proposed modification to Rule.  The cover letter from Newport News attached to the modification said "I have executed the enclosed modification on behalf of the company and request you immediately return a fully executed copy."

    Rule took a copy of the cover letter to the Chief and Vice Chief, NAVMAT in the afternoon.  He returned to his office and received a letter from the Chief, NAVMAT telling him that neither he nor his review group had a copy of the proposed modification that accurately reflected the results of Rule's efforts.  Final review had not been completed and the proposed modification could not be consummated before the review was done.

    According to Rule, he thought about the CGN-41 negotiation effort all afternoon after he met with the Chief and Vice-Chief, NAVMAT.  He explained in a deposition that he:

    Quote

    could see what was happening to this whole negotiated settlement. I knew the object of the negotiation. I knew why I had been picked to negotiate a settlement pursuant to the order of the court, which I had done. I could see the Rickover-Proxmire, et al., influence at work everywhere.

    And I decided those things all-those things all ran through my mind-I wasn't unmindful of the roadblocks and the lack of cooperation that I had gotten and was getting from the office of General Counsel. When my Contracting Officers statement was turned over to the Office of General Counsel for their review, they then asked me for substantiating documents. I gave them those documents . . . . They were requested by Admiral Lascara [Vice Chief, NAVMAT] to please not write anything until we can get together and discuss this: Let's at least discuss it. Rule had said one thing. Now, review it and let's get together and discuss it before you write anything. They never did. They wrote a 85-page document. They had lawyers working their butts off. They wrote an 85-page document and turned it over to the Department of Justice. And I don't know what it says today. They won't tell me. These are my own lawyers that are supposed to be helping me. They've never told me what was in there. Well, on the 7th of October when these things ran across my face, before my eyes, I said: Something's got to be done. I'm a Contracting Officer. I've got the authority. Now-I'm going to sign the goddam thing. And I signed it.

    October 8, 1976:  The Vice Chief, NAVMAT called Rule into his office at 8:22 a. m.  He gave Rule a letter dated October 7, 1976 that explained that he did not have authority to sign the modification.  Rule explained he had signed it and the Vice Chief requested Rule to give him all signed copies.  Rule refused but said he would give them to Clements.  The Vice Chief then left for his 9:15 am meeting with Clements.  Rule returned to his office dictated a transmittal letter imposing two conditions upon the modification and gave Newport News a copy.  The Vice Chief, NAVMAT called Rule into his office and told him that the Undersecretary of the Navy would keep all executed copies of the modification but Rule told him that he already had signed it.  He returned to his office, signed the transmittal sheet, and handed it to Newport News at 10 A. M.  Shortly afterward at 11:50 a. m., Rule was notified that his appointment as contracting officer was rescinded.  

    March 8, 1977:  The District Court for the Eastern District of Virginia ruled that:

    Quote

    There was a meeting of the minds of the parties on August 20, 1976; there is adequate consideration to support this compromise agreement; and failure to provide cost of pricing data does not invalidate the agreement.  We find that Deputy Secretary of Defense Clements, who initiated the negotiation efforts, has approved the compromise agreement.

    February 27, 1978:  The United States Court of Appeals, Fourth Circuit ruled that

    Quote

    We vacate this order [District Court's above] because we conclude that the parties' negotiators did not settle the case orally and because the Attorney General, whose approval was essential, rejected the terms that were ultimately reduced to writing.

     

  7. I always thought that the FAR Matrix was a good idea that was poorly executed. To begin with, it's notorious for containing errors. Second, most of the entries in the "Principle Type and/or Purpose of Contract" columns are "A", Required when applicable, which means you have to look up the prescription anyway. Lastly, the matrix isn't going to tell you if your agency deviates from the FAR prescription, which DoD does a lot. As such, I created a matrix that I think overcomes these problems.

    A few things about the matrix:

    • It contains every provision and clause in the FAR, DFARS, and in DoD Class Deviation memoranda.
    • It doesn't have any "Principle Type and/or Purpose of Contract" columns except for a Commercial Items column.
    • It contains the actual prescription of the provision or clause. For readability, I removed the number and title of the provision or clause in the block and just wrote "use this provision..." or "use this clause..." The identifying information for the provision or clause is already contained in the row.
    • For DoD, it contains additional instructions for the use of FAR clauses that is contained in the DFARS or in a class deviation. This information appears in bold. If you work for a civilian agency, just ignore what's in bold.
    • In the "IBR" column (Incorporation by Reference), there are no "N" entries for "no", with the exception of the provisions and clauses prescribed at FAR 52.107. This may cause some people to freak out, so I'll explain. FAR 52.102(c) states:
    Quote

    Agency approved provisions and clauses prescribed in agency acquisition regulations, and provisions and clauses not authorized by Subpart 52.3 to be incorporated by reference, need not be incorporated in full text, provided the contracting officer includes in the solicitation and contract a statement that—

    (1) Identifies all provisions and clauses that require completion by the offeror or prospective contractor;

    (2) Specifies that the provisions and clauses must be completed by the offeror or prospective contractor and must be submitted with the quotation or offer; and

    (3) Identifies to the offeror or prospective contractor at least one electronic address where the full text may be accessed.

    Thus, if the FAR Matrix contained a "Y" in the IBR column, my matrix will also contain a "Y". If the FAR Matrix contained an "N" in the IBR column, or the provision or clause came from the DFARS or a DoD class deviation, then my matrix will contain a "Y*". The key at the top of the matrix contains an explanation for the "Y*" entry. If you're wondering how to incorporate a provision or clause that contains fill-in material or something the offeror must complete, see FAR 52.102(a) and FAR 52.104(d).

    You can see the matrix on the DAU Acquisition Community Connection. I'm open to suggestions for making it better. Also, I would like to think that it doesn't contain any errors. However, if you spot one please let me know. As an incentive, I will add your agency's provisions and clauses (the ones in Title 48 of the CFR) to the matrix if you point out a mistake.

     

  8. Had you ever speculated on why April Fools’ Day seems to be such an important day for federal acquisition? After all, consider some of the regulatory and policy issuances on that day:

    • The Federal Acquisition Regulation (FAR) became effective on April Fools’ Day (1984).

    • The Federal Aviation Administration became exempt from the FAR on April Fools’ Day (1996).

    • The Office of Federal Procurement Policy (OFPP) memorandum on “Protests, Claims, and Alternative Dispute Resolution (ADR) as Factors in Past Performance and Source Selection Decisions” was issued on April Fools’ Day (2002).

    • Army Federal Acquisition Regulation Supplement (AFARS) Revision #25 was issued on April Fools’ Day (2010).

    • FAR Case 2010-015 on the Women-Owned Small Business (WOSB) Program was published in the Federal Register on April Fools’ Day (2011).

    No doubt a little research would provide a number of additional examples.

    Frankly, if it were me, April Fools’ Day would probably be the last day that I would pick for issuing important regulations or policy statements. That is one day that I would avoid like the plague. [Note: The last statement is not technically correct, I would go to greater extremes to avoid the plague than to publish an acquisition policy or procedure on April Fools’ Day.] Why not just wait a day, and avoid all the innuendo and snickering? After all, consider, April has 29 other days that are perfectly suitable for issuing regulations, policies, procedures, guidance and information.

    Comparison of Major Contract Types

    For example, on Monday, April 25, 2016, the Defense Acquisition University/Defense Systems Management College updated the Acquisition Community Connection with a revised version of its Comparison of Major Contract Types (i.e., Comparison of Major Contract Types - April 2016). [For those who would like a direct link: https://acc.dau.mil/CommunityBrowser.aspx?id=214513.] The new version better aligns with the terminology in the Contract Pricing Reference Guides, updates the charts on the reverse, and adds a chart on “Achieving a Reasonably Challenging but Achievable (RCA) Target Cost,” one of topics discussed extensively in the new Guidance on Using Incentive and Other Contract Types.

    Over the years, various versions of the “Comparison” have been fairly popular (i.e., 94,863 Page Views and 80,840 Attachments Downloaded. Although, given the number of personnel in the Defense Statutory Acquisition Workforce Contracting Career Field, 29,690 as of the 2nd quarter of 2015, those Lifetime Activity numbers may not be all that high, relatively speaking.

    The April Fools’ Day Announcements for 2016

    So, it can be done. However, this April Fools’ Day (2016) Defense Procurement and Acquisition Policy (DPAP) elected to issue two important pieces of procedures/guidance to the Defense Statutory Acquisition Workforce:

    • Guidance on Using Incentive and Other Contract Types (April 1, 1016).

    • Department of Defense Source Selection Procedures (SSP) (April 1, 1016).

    The Guidance

    Both documents have their warts. For instance, the Guidance incorrectly identifies one of the two statutory references for limitations on negotiation of price or fee. The good news is that thee one applicable to the DoD was identified correctly. Running the Spelling and Grammar checker one last time would not have been amiss.

    Warts aside, the results of this Better Buying Power (BBP) are somewhat disappointing. The Specific Action in the USD(AT&L) memorandum “Implementation Directive for Better Buying Power 2.0 - Achieving Greater Efficiency and Productivity in Defense Spending” was, “Director, DP will provide a draft policy guidance document on the use of incentives in contracting to the BSIG for review by July 1, 2013. The starting point for this document will be the DoD and NASA Guide, “Incentive Training (sic) Guide,” originally published in 1969.”

    For those of you unfamiliar with the Incentive Contracting Guide, it was the last of a number of such guides published in the 1960s. That particular version of the Guide was 252 pages. By comparison, the new Guidance is 41 pages. About 40 % of the Guidance is devoted to negotiation of fixed-price incentive (firm target) (FPIF) contracts in a sole-source environment a discussion of Reasonably Challenging but Achievable Target Cost (RCA), which go hand-in-hand. The coverage for Time and Materials/Labor Hour (T&M/LH) Contracts amounts to a paltry nine (9) lines. Ask yourself these two questions, “How many sole-source FPIF contracts does the Department award? If ‘T&M is the least preferable contract type,’ where should the emphasis have been placed?”

    For those of you who need guidance on structuring multiple incentive contracts the DOD and NASA Guide: Incentive Contracting Guide 1969 may be a better bet than the new Guidance. The good news is that it is still available on the Defense Acquisition University’s Acquisition Community Connection. [For those who would like a direct link: https://acc.dau.mil/CommunityBrowser.aspx?id=189615.]

    The Procedures

    The updated Source Selection Procedures are more than 505 longer than the previous version. The Procedures would have benefited from fact checking, copy editing and proof reading. Another warts issue.

    Warts aside, for those of you who will be involved in DoD source selections that meet the thresholds in the Procedures, you will want to give it a thorough read. Among other things, you will see some new descriptions of adjectival ratings and a new source selection procedure in APPENDIX B, “TRADEOFF SOURCE SELECTION PROCESS: SUBJECTIVE TRADEOFF AND VALUE ADJUSTED TOTAL EVALUATED PRICE (VATEP) TRADEOFF.” The latter came about as the result of USD(AT&L) memorandum “Implementation Directive for Better Buying Power 2.0 - Achieving Greater Efficiency and Productivity in Defense Spending.” Under the heading of Better define value in “best value” competitions there was a Specific Action, “Director, DP will review the ‘Process Manual’ developed by the joint Service team led by the Air Force and present a recommendation for adoption with any recommended changes to the BSIG by July 1, 2013.” You need to read the entire section to understand the direction. No doubt you will see a good deal of discussion about VATEP percolating up.

    Understand that although the Guidance and Procedures were issued on April Fools’ Day, they are no joke. Read them carefully, and implement them wisely.

  9. The long-standing principle that the federal government had the same implied duty of good faith and fair dealing as any commercial buyer was put in jeopardy by a 2010 decision of the U.S. Court of Appeals for the Federal Circuit, Precision Pine & Timber, Inc. v. U.S., 596 F.3d 817 (Fed. Cir. 2010). There a panel of the court adopted a narrow rule seemingly limiting application of the principle to situations where a government action was “specifically targeted” at the contractor or had the effect of taking away one of the benefits that had been promised to the contractor. Although the decision concerned a timber sales contract not a procurement contract, when I wrote it up in the May 2010 Nash & Cibinic Report (24 N&CR ¶ 22), I expressed the fear that the reasoning would be subsequently applied to procurement contracts.

    My fear was realized in a construction contract case, Metcalf Construction Co. v. U. S., 102 Fed. Cl. 334 (2011). In that decision, the judge described eggregious conduct on the part of the government officials that would have been held to be a breach of the implied duty of good faith and fair dealing under many earlier cases. However, the judge held that under the Precision Pine standard, the contractor had not proved that the actions were specifically targeted at the contractor. In the February 2012 Nash & Cibinic Report (26 N&CR ¶ 9), I criticized this decision but stated that I believed that even if the decision was affirmed on appeal, most contracting officers would not take this as a signal that the proper way to administer contracts was to abuse the contractor.

    Fortunately, a panel of the Federal Circuit has reversed the decision, Metcalf Construction Co. v. U. S., 2014 WL 519596, 2014 U.S. App. LEXIS 2515 (Fed. Cir. Feb. 11, 2014). The court held that the lower court had read Precision Pine too narrowly and that “specific targeting” was only one example of the type of conduct that could constitute a breach of the implied duty of good faith and fair dealing. Importantly, the court also rejected the government’s argument that this “implied duty” only could be found when it was footed in some express provision of the contract. The court concluded that the correct rule was only that the express provisions of a contract had to be examined to ensure that they had not dealt with the conduct of the government; for if they had, they would override the implied duty.

    This leaves us in a tenuous position with regard to the views of the Federal Circuit. We have one panel in Precision Pine stating a narrow rule, another panel in Metcalf Construction stating the traditional rule, and a third panel in Bell/Heery A Joint Venture v. U.S., 739 F.3d 1324 (Fed. Cir. 2014), ruling in favor of the government because the contractor had not alleged facts showing that the government had “engaged in conduct that reappropriated benefits promised under the contract” (which is part of the Precision Pine reasoning). Thus, it is difficult to state where the judges of the Federal Circuit stand. Hopefully, the court will agree to take either Metcalf Construction or Bell/Heery to the full court for an en banc review of the issue.

    I’ve never been sure why the Department of Justice has so vigorously argued that the government should not be held to the same standards of conduct as a commercial buyer. Of course, persuading the courts and boards that a narrower standard should be applied to the government is a way to win litigated cases. But, in my view, encouraging abusive or non-cooperative conduct hurts the government as much as it hurts its contractors. I have taught for many years that in the long run the government benefits from actions that show industry that it is a fair contracting partner. A line of published judicial decisions that demonstrates that the government is not such a partner is one more of the many messages that tell companies they should sell to the government only when they can find no other customer. Surely, this is not the message that government agencies in need of products and services on the commercial marketplace want to convey to companies that can provide those products and services.

    Many years ago when I came to Washington to work in the field of government contracting, I concluded that there was one major advantage to being on the government side of the negotiating table. That advantage was that I was under no pressure to extract money from the contractor by unfair bargaining or unfair contract administration. To me fairness was an integral part of the job of a government employee. I still believe it and teach it. Thus, no matter what the outcome of the good faith and fair dealing litigation, I will continue to urge government employees that fair treatment of contractors is the only way to go.

    Ralph C. Nash

  10. When I get older, losing my hair

    Many years from now . . . .

    When I'm Sixty-Four

    John Lennon, Paul McCartney

    Shortly after we celebrate our country's independence on July 4, 2013, Wifcon.com will end its 15th year on the internet. With much help from the Wifcon.com community, I've raised a growing teenager. When I started, I was 49 and my hair was so thick that I often shouted ouch or some obscenity when I combed it. Wifcon.com has existed in 3 decades and parts of 2 centuries. During that period, I've updated this site for every work day--except for the week or so when I called it quits. I remember the feeling of relief. I thought it was over. However, many of you convinced me to bring it back. Yes, just when I thought I was out, many of you pulled me back in.

    As I mentioned in an earlier post, someone once told me that Wifcon.com was my legacy. I once had great hopes for a legacy. Perhaps, a great saxophone player belting out a solo in front of thousands of fans and seeing them enjoying themselves. Instead, here I sit in my solitude looking for news, decisions, etc., to post to the home page. For many years, my dog Ambrose kept me company. Now, my dogs Blue Jay and Lily stare at me and look for attention. With my sights now set realistically, I accept that Wifcon.com is my legacy. It's the best I could do.

    Every now and then, I receive an e-mail from someone thanking me for Wifcon.com. They tell me how it helped their careers. These e-mails keep me and Wifcon.com going.

    Send me a postcard, drop me a line,

    Stating point of view

    Indicate precisely what you mean to say

    Yours sincerely, wasting away

    Give me your answer, fill in a form

    When I'm Sixty-Four

    John Lennon, Paul McCartney

    The thoughts in these e-mails won't let me quit. I still search each night for something to add to the site in hopes that it will increase your knowledge. If I find something new, I still get excited. Often, it feels like a self-imposed weight around my neck. What started as a release for my imagination has evolved into a continuing and daily addition to the contracting community. In the evenings, it is as if I'm Maillardet's automaton. I head over to my office, sit before the computer, and update. Then I send the updated pages to Virginia where it is accessed from around the world. Maybe I'm addicted to Wifcon.com; maybe I was born with the Wifcon.com gene.

    If you haven't added the numbers, I'm 64 now. Wifcon.com and I are showing our age. I can comb the top of my head with my fingers. The ouches and other obscenities caused by my once thick hair are gone. A recent upgrade to the discussion forum requires that I turn the "compatibility mode" off on my browser. In that mode, I realized that Wifcon.com is ugly. I have current software for the needed future redo of this site.

    I am Wifcon.com; Wifcon.com is me. It is my legacy and my albatross. As always, thank you for your support.

    You'll be older too,

    And if you say the word,

    I could stay with you.

    When I'm Sixty-Four

    John Lennon, Paul McCartney