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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: June 27, 2002

SUBJECT: Federal Acquisition Circular (FAC) 2001-08, Miscellaneous Amendments

SOURCE: Federal Register, June 27, 2002, Vol. 67, No. 124, page 43511

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

ACTION: Final Rules

SYNOPSIS: The Federal Acquisition Regulatory Council is issuing FAC 2001-08 to amend the Federal Acquisition Regulation (FAR) in the following areas: (1) definition of "Claim" and terms relating to termination; (2) Federal Supply Schedule order disputes and incidental items; (3) relocation costs; and (4) technical amendments.

EFFECTIVE DATES: All items are effective July 29, 2002.

FOR FURTHER INFORMATION CONTACT: The following analysts:

      Items (1) and (2), Linda Klein at 202-501-3775.

      Item (3), Jeremy Olson at 202-501-3221.

For more information on the technical amendments or for general information, contact the FAR Secretariat, Room 4035, GS Building, Washington, DC 20405, 202-501-4755.

SUPPLEMENTAL INFORMATION: (1) Definition of "Claim" and Terms Relating to Termination: This final rule moves the definitions of "claim" and various other terms related to contract terminations to FAR 2.101, Definitions, to clarify the applicability of definitions, eliminate redundant or conflicting definitions, and make the definitions easier to find. The rule is not intended to change the meaning of any FAR text or clause, nor is the movement of the definitions to FAR 2.101 intended to change the operation of the cost principles.

The final rule makes the following changes:

• It moves the definition of "claim" from FAR 33.201, Definitions, to FAR 2.101, and revises it by deleting the confusing sentence, "A claim arising under a contract, unlike a claim relating to that contract, is a claim that can be resolved under a contract clause that provides for the relief sought by the claimant." Then, to clarify the distinction between claims that "arise under a contract" and those that "relate to a contract," the following parenthetical phrase is added to paragraph (a) of FAR 33.213, bligation to Continue Performance: "(A claim arising under a contract is a claim that can be resolved under a contract clause, other than the clause at 52.233-1, Disputes, that provides for the relief sought by the claimant; however, relief for such claim can also be sought under the clause at 52.233-1. A claim relating to a contract is a claim that cannot be resolved under a contract clause other than the clause at 52.233-1.)" Finally, the definition of "claim" in FAR 52.233-1 is revised to correspond to the FAR 2.101 definition.
  
  
• The definition of "termination for convenience" is moved from FAR 17.103, Definitions, to FAR 2.101. To clarify the difference between "termination for convenience" and "cancellation" in FAR Subpart 17.1, Multi-Year Contracts, the following is added as new paragraph (d) of FAR 17.104, General: "The termination for convenience procedure may apply to any government contract, including multiyear contracts. As contrasted with cancellation, termination can be effected at any time during the life of the contract (cancellation is effected between fiscal years) and can be for the total quantity or partial quantity (whereas a cancellation must be for all subsequent fiscal years' quantities)."
  
  
• The definitions of "continued portion of the contract," "partial termination," and "terminated portion of the contract" are moved from FAR 49.001, Definitions, to FAR 2.101.
  
  
• A definition of "termination of default" is added to FAR 2.101. It takes the "general" statement in paragraph (a) of FAR 49.401 ("termination for default is generally the exercise of the government's right to completely or partially terminate a contract because of the contractor's actual or anticipated failure to perform its contractual obligations") and turns it into a definition ("termination for default means the exercise...").

On August 15, 2001, a proposed rule was published to make these changes (see the August 15, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Definition of 'Claim' and Terms Relating to Termination"). One respondent submitted two comments suggesting editorial changes, and both were accepted, so the proposed rule was finalized with a correction to a cross-reference and the inclusion of "the movement of the various definitions to FAR 2.101 is not intended to change the operation of the cost principles" in the introduction to the final rule.

(2) Federal Supply Schedule Order Disputes and Incidental Items: This final rule amends the FAR to add policies on disputes and incidental items under Federal Supply Schedule (FSS) contracts and to remove the requirement that contracting officers notify GSA when a schedule contractor refuses to honor an order placed by a government contractor, as follows:

• It had been common practice to add "incidental" non-FSS items to FSS orders for administrative convenience. However, on July 15, 1999, the General Accounting Office (GAO) ruled in a protest that agencies "may no longer rely on the 'incidentals' test to justify the purchase of non-FSS items in connection with an FSS buy; where an agency buys non-FSS items, it must follow applicable acquisition regulations" (Pyxis Corporation, B-282469; B-282469.2). Therefore, paragraph (d) is added to FAR 8.401, General, to permit the addition of "items not on the Federal Supply Schedule (also referred to as open market items) to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order" only if "(1) all applicable acquisition regulations have been followed (e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15)); and small business programs (Part 19)); (2) the ordering office contracting officer has determined the price for the items not on the Federal Supply Schedule is reasonable; and (3) the items are clearly labeled on the order as items not on the Federal Supply Schedule..."
  
  
• FAR 8.405-7, Disputes, had stated that ordering offices "shall refer all unresolved disputes under orders to the schedule contracting office for action under the Disputes clause of the contract." FAR 8.405-7 is revised to permit the ordering office contracting officer to "issue final decisions on disputes arising from performance of the order..." However, disputes pertaining to the terms and conditions of schedule contracts still have to be referred to the schedule contracting officer for resolution.
  
  
• FAR 51.103, Ordering from Government Supply Sources, provides procedures for contractors that are authorized to place orders under FSS contracts. Paragraph (b), which requires the contracting officer to report to GSA any refusal by an FSS contractor to fulfill an order from an authorized contractor, is removed because agencies are no longer required to notify GSA under those circumstances.

A proposed rule was published on December 19, 2000, to make these changes (see the December 19, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Federal Supply Schedule Order Disputes and Incidental Items"). Nine respondents submitted comments, and the following changes were made to the finalized rule:

• Proposed FAR 8.401(d) referred to "open market (noncontract) items" in several places. Since there are no definitions in the FAR for "open market" or "noncontract," the expression "items not on the Federal Supply Schedule" was substituted as the best characterization of these items.
  
  
• Also in proposed FAR 8.401(d), one respondent suggested that FAR Part 19, Small Business Programs, be listed as an applicable acquisition regulation because its omission would allow ordering offices to circumvent the requirement that all procurements valued between $2,500 and $100,000 be set aside for small business concerns. Accordingly, FAR Part 19 has been added to the list to further emphasize that ordering offices must consider small business programs when acquiring items not on the FSS.
  
  
• Proposed FAR 8.405-7(d) stated, "The contracting officer should use the alternative dispute resolution (ADR) procedures, when appropriate (see 33.214)." One respondent suggested that the language should be revised to cite the policy statement in FAR 33.204, Policy, that ADR should be used "to the maximum extent practicable." The FAR Council agrees, so paragraph (d) now states, "The contracting officer should use the alternative dispute resolution (ADR) procedures, to the maximum extent practicable (see 33.204 and 33.214)."

(3) Relocation Costs: FAR 31.205-35, Relocation Costs, is amended to make the following changes:

• Paragraph (a)(10) is added to make allowable payments for increased employee income and Federal Insurance Contributions Act (FICA) taxes incident to allowable reimbursed relocations costs (the statement that these payments are unallowable is removed from paragraph (c)).
  
  
• Paragraph (a)(11) is added to make allowable payments for spouse employee assistance (the statement that these payments are unallowable is removed from paragraph (c)).
  
  
• Paragraph (b)(4) is amended to increase from $1,000 to $5,000 the ceiling for miscellaneous expenses of relocation (such as disconnecting and connecting appliances, automobile registration, forfeited utility fees and deposits) when the contractor uses the lump-sum payment method.

(4) Technical Amendments: This makes several changes to the FAR to update references and make editorial changes:

• The date of Alternate I of FAR 52.202-1, Definitions, is corrected from "Mar 2001" to "May 2001".
  
  
• In paragraph (c)(10)(i) of FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items, "principal place of ownership" is replaced by "principal office."
  
  
• In the third sentence of Paragraph (b)(1) of FAR 52.225-11, Buy American Act -- Construction Materials Under Trade Agreements, "and Balance of Payments Program" is removed to reflect the removal of the Balance of Payments Program from the FAR by Item (2) of FAC 2001-07 (see the April 30, 2002, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 2001-07, Miscellaneous Amendments").

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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