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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: March 11, 2005

SUBJECT: General Services Administration Acquisition Regulation (GSAR); Waiver of Consequential Damages and “Post Award” Audit Provisions

SOURCE: Federal Register, March 11, 2005, Vol. 70, No. 47, page 12167

AGENCIES: Office of Governmentwide Policy, General Services Administration (GSA)

ACTION: Advance Notice of Proposed Rulemaking (ANPR)

SYNOPSIS: GSA is requesting comments on whether the GSAR should be revised (1) to include a waiver of consequential damages for contracts awarded for commercial items under the Federal Acquisition Regulation (FAR); and (2) whether “post award” audit provisions should be included in its multiple award schedules (MAS) contracts and governmentwide acquisition contracts (GWACs).

EDITOR'S NOTE: The GSAR is the shaded part of the GSA Acquisition Manual, which is available on the Internet at http://www.acqnet.gov/GSAM/gsam.html.

DATES: Comments should be submitted no later than March 25, 2005.

A public meeting to discuss the ANPR will be held on April 14, 2005, from 9:00 a.m. to 4:00 p.m. EST. Interested parties are encouraged to provide written comments on issues they would like addressed at the meeting. Such written comments should be submitted no later than March 25, 2005.

ADDRESSES: Submit comments, identified by "GSAR ANPR 2005-N01,” to: (1) http://www.regulations.gov; (2) http://www.acqnet.gov/GSAM/gsamproposed.html; (3) e-mail: gsaranpr.2005-N01@gsa.gov; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405.

The public meeting will be held at the General Services Administration, National Capital Region, 301 7th and D Street, SW, Washington, DC 20407, in the auditorium. Interested parties may register and submit electronic comments at http://www.acqnet.gov/GSAM/gsamproposed.html.

FOR FURTHER INFORMATION CONTACT: Ernest Woodson, at 202-501-3775.

SUPPLEMENTAL INFORMATION: GSA is seeking comments on the following topics related to the acquisition of commercial items, and the conduct of post-award audits under its multiple award schedules (MAS) contracts and governmentwide acquisition contracts (GWACs):

• Waiver of Consequential Damages: FAR Part 12, Acquisition of Commercial Items, prescribes polices and procedures unique to the acquisition of commercial items. FAR 52.212-4, Contract Terms and Conditions -- Commercial Items, includes terms and conditions that are consistent with customary commercial practices to the maximum extent practicable. FAR 52.212-4(p) states, “Except as otherwise provided by an express warranty, the contractor will not be liable to the government for consequential damages resulting from any defect or deficiencies in accepted items.” Also, paragraph (a) of FAR 12.302, Tailoring of Provisions and Clauses for the Acquisition of Commercial Items, permits the contracting officer to tailor FAR 52.212-4 “to adapt to market conditions for each commercial acquisition.”
  
  The following concerns have been expressed regarding FAR 52.212-4 and FAR 12.302:
  
  
  • Unlimited consequential or other incidental or special damages are not necessary but are, in fact, counterproductive to efficient procurement because they raise costs and establish barriers to commercial companies considering whether to do business with the federal government.
    
    
  • Although FAR 12.302 permits contracting officers to tailor the limitation of liability in FAR 52.212-4(p), some companies assert that contracting officers are unwilling to do so. This leaves contractors with a take-it or leave-it choice, making contractors less willing to sign such contracts.
    
    
  • Commercial practice provides for a complete wavier of consequential damages.
    
    
  • If FAR Part 12 were appropriately amended to reflect commercial practices, contractors would make risk decisions and negotiate government contracts without having to add a premium for liability protection.
    
    
  • The waiver of consequential damages for commercial products and services should be made available under other provisions of the FAR.
  
  
• Post-Award Audits: The Government Accounting Office (GAO) and GSA's Inspector General (IG) have raised concerns regarding GSA's right to access and examine contractor records after contract award. GSA's primary vehicle for conducting post-award audits is GSAR 552.215-70, Examination of Records by GSA, which gives the GSA administrator, or any duly authorized representative, access to and the right to examine contractor records relating to over-billings, billing errors, compliance with GSAR 552.238-77, Industrial Funding Fee and Sales Reporting, and GSAR 552.238-75, Price Reductions.
  
  In addition to GSAR 552.215-71, Examination of Records by GSA, GSA may use a number of other authorities to conduct a post-award review of a contractor's records. These other authorities include paragraph (d) of FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders, which authorizes the Comptroller General of the United States to access and examine a contractor's directly pertinent records involving transactions related to the contract; paragraph (b) of GSAR 515.209-70, Examination of Records by GSA Clause, which permits a contracting officer to modify GSAR 552.215-71 to define the specific area of audit (for example, the use or disposition of government-furnished property, compliance with price reduction clause, etc.), and the right of the GSA Inspector General to issue subpoenas for contractor records under the Inspector General Act of 1978.
  
  Contractors' major concerns with GSA's post-award audit authority include complaints that they are too broad and not consistent with commercial contract practices.

GSA is seeking comments and recommendations on whether the GSAR should be revised to waive consequential damages in the purchase of commercial items, and whether GSA should modify its policy and practices with regard to the addition of post award audit clauses into contracts it awards. GSA is particularly interested in how the taxpayer may benefit from any revisions to the GSAR that would address contractor concerns regarding limitation of liability or post-award, and what effect the Services Acquisition Reform Act of 2003 (SARA) has on the issue of revising the GSAR to address limitations of liability. (EDITOR’S NOTE: For more on the Services Acquisition Reform Act of 2003, see the November 25, 2003, FEDERAL CONTRACTS DISPATCH “Enactment of the National Defense Authorization Act for Fiscal Year 2004,” Title XIV, Services Acquisition Reform (SARA).)

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953.

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