DATE: April 25, 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Circular (FAC) 97-17, Miscellaneous Amendments

SOURCE: Federal Register, April 25, 2000, Vol. 65, No. 80, page 24315

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 97-17 to amend the Federal Acquisition Regulation (FAR) in the following six subject areas: (1) competition under multiple award contracts; (2) determination of price reasonableness and commerciality; (3) Caribbean Basin Trade Initiative; (4) utilization of Indian Organizations and Indian-Owned Economic Enterprises; (5) ocean transportation by U.S.-flag vessels; and (6) technical amendments. These FAR changes are in plain language as required by the June 1, 1998, Presidential memorandum "Plain Language in Government Writing."

DATES: Items (1), (2), (3) and the technical amendments are effective April 25, 2000. Items (4) and (5) are effective June 26, 2000.


     Item (1): Ralph De Stefano at 202-501-1758.

     Item (2): Jeremy Olson at 202-501-0692.

     Item (3): Paul Linfield at 202-501-1757.

     Item (4): Victoria Moss at 202-501-4764.

     Item (5): Linda Klein at 202-501-3775.

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) Competition Under Multiple Award Contracts: There has been growing concern that contracting officers are using task- and delivery-order contracts to avoid the requirements of the Competition in Contracting Act, and that the government may not be obtaining the full benefit of these types of contracts. In response to this concern, Congress passed the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65), and its Section 804, Guidance on Use of Task Order and Delivery Order Contracts, requires that the FAR be revised "to provide guidance to agencies on the appropriate use of task order and delivery order contracts".

On December 15, 1999, a proposed rule was published to amend FAR Subpart 16.5, Indefinite-Delivery Contracts, to clarify what contracting officers should consider when planning for multiple awards of indefinite-delivery contracts and to clarify how orders should be placed against the resultant contracts. Fourteen respondents submitted comments, and the proposed rule is finalized with minor editorial changes.

The following are the major changes being made to FAR Subpart 16.5:

In addition, the definition of "advisory and assistance services" is moved from FAR 37.201, Definitions, to FAR 2.101, Definitions.

EDITOR'S NOTE: The General Accounting Office's (GAO) March 20, 2000, report NSAID-00-56, Few Competing Proposals for Large DOD Information Technology Orders, which found that 16 of 22 task- and delivery-orders over $5 million GAO reviewed were awarded without competitive proposals, is being evaluated to determine what additional changes are needed to FAR. For more on the GAO report, see the March 22, 2000, FEDERAL CONTRACTS DISPATCH "General Accounting Office; Few Competing Proposals for Large Department of Defense (DOD) Information Technology (IT) Orders."

(2) Determination of Price Reasonableness and Commerciality: This rule finalizes the interim rule that was published in FAC 97-14 on September 24, 1999, which implemented Sections 803 and 808 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261). Section 803 directed that the FAR be revised to provide specific guidance on the evaluation of price reasonableness of commercial items, and Section 808 directed that the FAR be amended to require that compliance with the requirement to provide information other than certified cost or pricing data be a condition for contract or subcontract award. Accordingly, FAR 12.209, Determination of Price Reasonableness; FAR 15.403-1, Prohibition on Obtaining Cost or Pricing Data (10 U.S.C. 2306a and 41 U.S.C. 254b); FAR 15.403-3, Requiring Information Other Than Cost or Pricing Data; FAR 15.404-1, Proposal Analysis Techniques; FAR 15.404-2, Information to Support Proposal Analysis; and several other FAR sections were revised as an interim rule, and comments were solicited. Five respondents submitted comments and, as a result of those comments, the interim rule is finalized without change except that the reference at the end of FAR 15.404-3(c)(1) is changed from "(see 15.403-3(a)(1))" to "(see 15.404-1)".

(3) Caribbean Basin Trade Initiative: On February 23, 2000, the U.S. Trade Representative (USTR) Charlene Barshefsky published a notice that she had decide to renew the treatment of Caribbean Basin country end products as eligible products under the Trade Agreements Act (see FAR 25.403) through September 30, 2000, except for end products from the Dominican Republic and Honduras. Therefore, this final rule amends FAR Parts 25.003, Definitions, and paragraph (a) of FAR 52.225-5, Trade Agreements, to remove the Dominican Republic and Honduras from the list of "Caribbean Basin countries" eligible as beneficiaries under the Caribbean Basin Economic Recovery Act; adds to paragraph (a)(2) of FAR 25.400, Scope of Subpart, that the Dominican Republic and Honduras are excepted from the provisions of the Caribbean Basin Economic Recovery Act; and amends FAR 25.404, Caribbean Basin Trade Initiative, to extend the USTR determination from September 30, 1999, to September 30, 2000 (the determination for Panama was already effective through September 30, 2000).

EDITOR'S NOTE: The Department of Defense implemented this change in the Defense FAR Supplement (DFARS) earlier this month -- see the April 13, 2000, FEDERAL CONTRACT DISPATCH "Defense FAR Supplement (DFARS); Caribbean Basin Countries." Also, the USTR's February 23, 2000, determination states that "renewal of this treatment beyond September 30, 2000, will be based on beneficiaries' effort to improve domestic procurement practices, on their support for relevant international initiatives...and on their progress toward acceding to the WTO [World Trade Organization] Government Procurement Agreement. For more on the USTR's request for information on foreign countries engaging in discriminatory government procurement practices, see the February 1, 2000, FEDERAL CONTRACTS DISPATCH "Identification of Foreign Countries Engaging in Discriminatory Procurement Practices."

(4) Utilization of Indian Organizations and Indian-Owned Economic Enterprises: The Indian Financing Act of 1974 established the Indian Incentive Program to encourage contractors to use Indian organizations and Indian-owned economic enterprises as subcontractors. The act does so by permitting an incentive payment to the contractor "equal to 5% of the amount paid to a subcontractor in performing the contract, if the contract so authorizes and the subcontractor is an Indian organization or Indian-owned economic enterprise." The act is implemented by Federal Acquisition Regulation (FAR) Subpart 26.1, Indian Incentive Program. However, annual DOD appropriations acts restricted DOD payments to contractors that submitted small business subcontracting plans under FAR Subpart 19.7, The Small Business Subcontracting Program, and to contractors participating in the test program for comprehensive small business subcontracting plans under DFARS Subpart 219.7, Subcontracting with Small Business, Small Disadvantaged Business and Women-Owned Small Business Concerns. Since small businesses are not required to submit small business subcontracting plans, they were not eligible to earn the 5% incentive for subcontracting with Indian organizations or Indian-owned economic enterprises.

Section 8024 of the DOD Appropriations Act for Fiscal Year 1999 (Public Law 105-262) eliminated this link between a DOD contractor's subcontracting plan requirement and the contractor's eligibility for participation in the Indian Incentive Program. On October 27, 1999, a proposed rule was published to remove obsolete DOD-unique guidance from FAR 26.104, Contract Clauses and FAR 52.226-1, Utilization of Indian Organizations and Indian-Owned Economic Enterprises. Six respondents submitted comments, but the final rule is adopted as proposed.

The final rule deletes FAR 26.104(a) ("contracting officers in the Department of Defense shall insert the clause at 52.226-1...in solicitations and contracts that contain the clause at 52.219-1, Small Business Subcontracting Plan"), and FAR 52.226-1(a) ("for Department of Defense contracts, this clause only applies if the contract includes a subcontracting plan..."). This final rule also makes several editorial changes.

EDITOR'S NOTE: While this final rule removes the DOD-unique language and now allows DOD to make incentive payments to small businesses that subcontract to Indian organizations or Indian-owned economic enterprises when the contract includes FAR 52.226-1, DOD had to amend the DFARS to provide directions on when DOD contracting officers should include FAR 52.226-1 in contracts. DOD made the necessary revisions earlier this month -- see the April 13, 2000, FEDERAL CONTRACT DISPATCH "Defense FAR Supplement (DFARS); Utilization of Indian Organizations and Indian-Owned Economic Enterprises."

(5) Ocean Transportation by U.S.-Flag Vessels: This final rule applies the preference for U.S.-flag vessels in FAR Subpart 47.5, Ocean Transportation by U.S.-Flag Vessels, to contracts awarded using the simplified acquisition procedures in FAR Part 13, Simplified Acquisition Procedures. FAR Subpart 47.5 implements the Cargo Preference Act of 1954, which requires that at least 50% of the gross tonnage of equipment, materials, or commodities that may be transported in ocean vessels be transported in privately-owned U.S.-flag commercial vessels except under limited circumstances. (EDITOR'S NOTE: FAR Subpart 47.5 does not apply to the DOD (see FAR 47.500, Scope of Subpart). DOD's policies and procedures are in DFARS Subpart 247.5.)

On July 12, 1999, a proposed rule was published to revise FAR 47.504, Exceptions; FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items; FAR 52.213-4, Terms and Conditions -- Simplified Acquisitions (Other Than Commercial Items); and FAR 52.247-64, Preference for Privately Owned U.S.-Flag Commercial Vessels (46 U.S.C. 1241), so that FAR Subpart 47.5 and FAR 52.247-64 would apply to contracts awarded under FAR Part 13 procedures. The proposed rule also would have amended FAR 47.504 and FAR 52.247-64 to exempt subcontracts for commercial items and commercial components.

Five respondents submitted comments, and as a result, the proposed FAR changes to apply the Cargo Preference Act to contracts awarded under simplified acquisition procedures are adopted as final, but the proposed FAR changes exempting subcontracts for commercial items and commercial components are not adopted. That issue will be addressed in a separate FAR rule. (EDITOR'S NOTE: Recently, DOD revised the DFARS to limit the exemption of subcontracts for commercial items and commercial components from the preference for U.S. vessels. See the March 16, 2000, FEDERAL CONTRACTS DISPATCH "DFARS; Cargo Preference -- Subcontracts for Commercial Items.")

This final rule makes the following changes:

(6) Technical Amendments: The technical amendments update references and make editorial changes in several FAR sections. One amendment changes the title "Under Secretary of Defense for Acquisition and Technology" to "Under Secretary of Defense for Acquisition, Technology, and Logistics" in paragraph (a)(4) of FAR 6.304, Approval of the Justification, and the last sentence of FAR 31.101, Objectives. The other amendment changes the date "19__" to "20__" in FAR 32.411, Agreement for Special Bank Account (in the texts of the Agreement for Special Bank Account, Recitals, and Covenants); paragraph (c) of FAR 32.805, Procedure (in the text of the Acknowledgement); in FAR 42.1204, Applicability of Novation Agreements (in the Novation Agreement and the Certificates); and in FAR 42.1205, Agreement to Recognize Contractor's Change of Name (in the Change-of-Name Agreement and the Certificate).

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

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