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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: December 20, 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Circular (FAC) 97-21; Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings

SOURCE: Federal Register, December 20, 2000, Vol. 65, No. 245, page 80255

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Final Rule

SYNOPSIS: The Federal Acquisition Regulatory Council is issuing FAC 97-21 to amend Federal Acquisition Regulation (FAR) Part 9, Contractor Qualifications, to clarify what constitutes a "satisfactory record of integrity and business ethics" in making contractor responsibility determinations, and certain cost principles under FAR Part 31, Contract Cost Principles and Procedures, related to labor relations and legal and other proceedings.

EDITOR'S NOTE: For more on the proposed rule, see the June 30, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings."

EFFECTIVE DATE: January 19, 2001.

FOR FURTHER INFORMATION CONTACT: Mr. Ralph De Stefano, Procurement Analyst, 202-501-1758.

SUPPLEMENTAL INFORMATION: FAC 97-21 is a product of Vice President Al Gore's September 21, 1997, promise to the AFL-CIO in Pittsburgh that the Clinton administration would require contracting officers to consider contractor compliance with labor laws when making responsibility determinations. "We want to make sure that companies that bust unions don't get or keep federal contracts," the vice president was reported to have said. "We're working very closely with your leadership on this and I'm confident we'll make it a reality very soon." Many contractors and business organizations have called this the "blacklisting" regulation.

On July 9, 1999, a proposed FAR change was published which would amend FAR Part 9, Contractor Qualifications, to clarify coverage and give examples of suitable contractor responsibility considerations. Also, the proposed rule would amend FAR Part 31, Contract Cost Principles and Procedures, to make unallowable the costs of attempting to influence employee decisions regarding unionization, and legal expenses related to the defense of judicial or administrative proceedings brought by the federal government when a contractor is found to have violated a law or regulation, or the proceeding is settled by consent or compromise.

Over 1,500 comments were submitted. Many of the comments said the proposed rule was vague and subjective. Among the commenters against the proposed rule were DOD and GSA. Therefore, on June 30, 2000, a revised proposed rule was published which would provide additional guidance on the evaluation of a contractor's responsibility and would provide additional procedural protections to make sure contracting officers would not misuse their discretion.

About 300 comments were submitted in response to the June 30, 2000, proposed rule. Based on the comments, the FAR Council has decided to finalize the proposed rule with changes (the changes between the June 30, 2000, proposed rule and this final rule are in brackets ("[ ]"):

• Paragraph (b) of FAR 9.103, Policy, is revised to add: "Contracting officers should coordinate nonresponsibility determinations based upon integrity and business ethics with legal counsel."
  
  
• In Paragraph (d) of FAR 9.104-1, General Standards, the requirement that a prospective contractor have "a satisfactory record of integrity and business ethics" is supplemented with "including satisfactory compliance with the law including tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws." [The word "federal" was included before "law", but is removed, allowing the contracting officer to consider the prospective contractors compliance with state, local, and foreign laws.]
  
  
• A new paragraph (c), Integrity and Business Ethics, is added to FAR 9.104-3, Application of Standards (current paragraphs (c) and (d) are redesignated as paragraphs (d) and (e), respectively). [It states that "a satisfactory record of compliance with the law indicates that the prospective contractor possesses basic honesty, integrity and trustworthiness, and that the Government can trust or rely on the contractor to perform the contract in a timely manner"]. It requires contracting officers to "consider all relevant credible information" [the proposed rule stated that "contracting officers may consider all relevant credible information"], and recommends that contracting officers give "the greatest weight to violations of laws that have been adjudicated within the last three years preceding the offer." [Added is the statement, "Normally, a single violation of law will not give rise to a determination of nonresponsibility, but evidence of repeated, pervasive, or significant violations of the law may indicate an unsatisfactory record of integrity and business ethics."] It provides an "order of importance" for the information to be considered:
  
  
  1. Convictions of and civil judgments rendered against the prospective contractor for:
     
     
     • Fraud or a criminal offense in obtaining, attempting to obtain, [or performing] a federal, state, or local government contract or subcontract;
       
       
     • Violation of federal or state antitrust statutes related to the submission of offers;
       
       
     • Embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, or receiving stolen property;
       
       
  2. Indictments for any of the above offenses; and
     
     
  3. Relative to tax, labor and employment, environmental, antitrust, or consumer protection laws:
     
     
     • Federal or state felony convictions;
       
       
     • Adverse Federal court judgments in civil cases brought by the United States;
       
       
     • Adverse decisions by a federal administrative law judge, board, or commission indicating violations of law; and
       
       
     • Federal or state felony indictments.
  
  
  
  In addition, contracting officers "may consider other relevant information such as civil or administrative complaints or similar actions filed by or on behalf of a federal agency, board or commission, if such action reflects an adjudicated determination by the agency" [the consideration of civil or administrative complaints was included as the last item in the "order of importance" in the proposed rule]. [Also, the new paragraph (c) includes the statement that "contracting officers should give consideration to any administrative agreements entered into with prospective contractors who take corrective action after disclosure of law violations. These contractors, despite findings of law violations, may continue to be responsible contractors because they have corrected the conditions that led to the misconduct. On the other hand, failure to comply with the terms of an administrative agreement is evidence of a lack of integrity and business ethics."]
  
  
• To Paragraph (i) of FAR 14.404-2, Rejection of Individual Bids, is added "the contracting officer must promptly notify the bidder of the nonresponsibility determination and the basis for it."
  
  
• Paragraph (a)(1) of FAR 15.503, Notifications to Unsuccessful Offerors, is added "when the exclusion or elimination of a proposal is based on a nonresponsibility determination, the contracting officer must state the basis for the determination." (EDITOR'S NOTE: In the introductory material to the final rule, the FAR Council states, "If the prospective contractor disagrees with the contracting officer's decision, the prospective contractor may seek an independent review of that decision by filing suit in Federal District court under the Administrative Procedures Act; or by filing a bid protest with the General Accounting Office, the agency protest official, the Court of Federal Claims or the Federal District Court." But note that the Federal District Court authority to hear protests expires December 31, 2000.)
  
  
• Paragraph (b) is added to FAR 31.205-21, Labor Relations Costs. It states, "Costs incurred for activities that assist, promote, or deter unionization are unallowable."
  
  
• Paragraph (b)(2) of FAR 31.205-47, Costs Related to Legal and Other Proceedings, which disallows costs related to a civil or administrative proceeding where the contractor is found liable due to fraud or similar misconduct or where a monetary penalty is imposed, is revised to disallow costs "in a civil or administrative proceeding, a finding that the contractor violated, or failed to comply with, a law or regulation".
  
  
• To FAR 52.209-5, Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters, and FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items (one of which is required to be included in each solicitation in excess of the $100,000 simplified acquisition threshold), is added a certification in which the offeror must certify whether, within the past three years, "relative to tax, labor and employment, environmental, antitrust, or consumer protection laws", it has "(1) been convicted of a Federal or state felony (or has any federal or state felony indictments currently pending against them); or (2) had a federal court judgment in a civil case brought by the United States rendered against them; or (3) had an adverse decision by a federal administrative law judge, board, or commission indicating a willful violation of law." If the offeror responds affirmatively, it must provide additional information if requested by the contracting officer. [In the proposed rule, the offeror was required to "explain the nature of the violation and whether any fines, penalties, or damages were assessed."] (EDITOR'S NOTE: The introduction to this final rule says the FAR Council "estimates that the addition of this new certification requirement will increase the total burden hours [for the estimated 89,995 respondents]...for a new total of 606,667 hours.")

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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