DATE: June 30 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Regulation (FAR); Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings

SOURCE: Federal Register, June 30, 2000, Vol. 65, No. 127, page 40829

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

ACTION: Proposed Rule

SYNOPSIS: The July 9, 1999, proposed FAR rule that attempted to clarify what constitutes a "satisfactory record of integrity and business ethics" for a federal contractor produced 1,500 comments. As a result, the proposed rule has been revised and is reissued for additional public comment.

EDITOR'S NOTE: The July 9, 1999, proposed rule, and this revision are products 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.

DATES: Submit comments on or before August 29, 2000.

ADDRESSES: Submit comments to General Services Administration, FAR Secretariat (MVRS), 1800 F Street, NW., Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, e-mail: farcase.1999-010@gsa.gov. Cite FAR case 1999-010 in all correspondence related to this proposed rule.

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

SUPPLEMENTAL INFORMATION: The July 9, 1999, proposed rule would have amended FAR Part 9, Contractor Qualifications, to clarify coverage and give examples of suitable contractor responsibility considerations; and would have amended 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; shifted "debarment" from agency debarring officials to contracting officers and modified the grounds for debarment; appeared more of a punitive measure than one designed to protect the government's interest; and permitted contracting officers to give undue weight to unsubstantiated allegations. Therefore, the July 9, 1999, proposed rule has been divided into two separate proposed rules: this revised proposed rule which addresses contractor responsibility and certain cost principles, and a new rule to be proposed in the near future which will address the issue of debarment.

The following are the major provisions of the revised proposed rule, with differences between the two versions indicated in brackets ("[ ]"):

EDITOR'S NOTE: This revised proposed rule is somewhat better than the original proposed rule, but not by much. In some ways it is worse -- it's about three times longer than the original! And it is estimated the certification requirement will take 606,667 hours per year to produce 1,150,000 certifications! Besides, the fact is that any moderately large corporation is going to be found to have violated some regulation or provision of law within any three year period. Recently, Microsoft was found in violation of antitrust laws, but what should a contracting officer do, according to this proposed rule? Is each contracting officer going to have to decide, on his or her own, whether this judicial ruling means that Microsoft does not have sufficient "integrity or business ethics" to permit the purchase of Word or Excel software? What if Lockheed Martin misses some adverse administrative law judge's ruling and miscertifies -- is this an additional violation, another reason to deny Lockheed Martin a billion dollar contract?

One issue that is not addressed in this revised proposed rule (or the original proposed rule, for that matter) has to do with "certificates of competency" (see FAR Subpart 19.6, Certificates of Competency and Determinations of Responsibility). Paragraph (a) of FAR 19.601, General, states, "A Certificate of Competency (COC) is the certificate issued by the Small Business Administration (SBA) stating that the holder is responsible (with respect to all elements of responsibility, including, but not limited to, capability, competency, capacity, credit, integrity, perseverance, tenacity, and limitations on subcontracting) for the purpose of receiving a performing a specific government contract." Is SBA going to be the final arbiter on a small business' business ethics? Should it be?

In a related development, on June 12 Representative Stephen Horn (R-CA) and Representative Thomas Davis (R-VA) asked the General Accounting Office to determine how often government agencies have contracted with businesses that have violated federal tax, labor and employment, environmental, antitrust, or consumer protection laws. They said they need this information to assess the merits of the proposed regulation.

One final observation: it is somewhat amusing that the regulations produced by Al Gore's promise to the AFL-CIO are a direct contradiction of his "National Performance Review" recommendation that the federal procurement system be made less administratively burdensome! And, by the way, doesn't Section 4301 of the Clinger-Cohen Act require that certifications be removed from the FAR unless specifically required by law or there is no other less burdensome means of enforcing the regulation? Or doesn't Section 4301 apply to new certifications?

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

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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