DATE: January 10, 2001

SUBJECT: Federal Acquisition Circular (FAC) 97-22, Miscellaneous Amendments

SOURCE: Federal Register, January 10, 2001, Vol. 66, No. 7, page 2115

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 97-22 to amend the Federal Acquisition Regulation (FAR) in the following areas: (1) definitions; (2) applicability, thresholds and waiver of Cost Accounting Standards coverage; (3) advance payments for non-commercial items; (4) Part 12 and assignment of claims; (5) clause flowdown -- commercial items; 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."

EFFECTIVE DATES: Items 2 and 6 are effective January 10, 2001, and Items 1, 3, 4, and 5 are effective March 12, 2001.


     Items (1) and (3), Jeremy Olson at 202-501-3221.

     Item (2), Linda Nelson at 202-501-1900.

     Items (4) and (5), Victoria Moss at 202-501-4764.

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) Definitions: This final rule eliminates redundant or conflicting definitions and makes definitions easier to find. The rule makes the following changes.

(2) Applicability, Thresholds, and Waiver of Cost Accounting Standards Coverage: FAC 97-18 included an interim rule that increased the threshold for the use of FAR 52.230-3, Disclosure and Consistency of Cost Accounting Practices (which requires full cost accounting standards coverage), from $25 million to $50 million (in paragraph (b)(1) of FAR 30.201-4, Contract Clauses), and made other changes to the FAR to conform the Cost Accounting Standards Board regulation changes. One respondent submitted comments on the interim rule, but the rule is finalized without change. (EDITOR'S NOTE: For more on the interim rule, see the June 6, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-18, Miscellaneous Amendments.")

(3) Advance Payments for Non-Commercial Items: This final rule revises FAR Subpart 32.4, Advance Payments for Non-Commercial Items, to permit federally insured credit unions to participate in the maintenance of special accounts for advance payments. Previously, FAR Subpart 32.4 required that contractors deposit advance payments in special accounts separate from their general or other funds unless exempted by paragraphs (e) or (f) of FAR 32.409-3, Security, Supervision, and Covenants. FAR 32.411, Agreement for Special Bank Account, and other FAR sections excluded credit unions from participating in the maintenance of these special accounts by requiring that contractors establish these special accounts at banks that are members of the Federal Reserve System (FRS) or insured by the Federal Deposit Insurance Corporation (FDIC). However, many credit unions are federally insured through the National Credit Union Administration (NCUA), so they provide the government with comparable security for funds advanced to contractors as do banks that are members of the FRS or insured by FDIC.

On May 2, 2000, a proposed rule was published to amend FAR Subpart 32.4 to change the word "bank" to "financial institution", change the phase "at a member bank of the Federal Reserve System or any 'insured' bank within the meaning of the Act creating the Federal Deposit Insurance Corporation" to "at a member bank of the Federal Reserve System, any 'insured' bank within the meaning of the Act creating the Federal Deposit Insurance Corporation ...or a credit union insured by the National Credit Union Administration", and make similar changes to give contractors the option of depositing advance payments in special accounts maintained by credit unions insured by NCUA. Two respondents submitted comments, but the proposed rule is finalized without changes. (EDITOR'S NOTE: For more on the proposed rule, see the May 2, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Advance Payments for Non-Commercial Items.")

(4) Part 12, Acquisition of Commercial Items, and Assignment of Claims: Paragraph (e) of FAR 52.232-36, Payment by Third Party, prohibits a contractor from assigning its rights to receive payment in accordance with the Assignment of Claims Act (31 U.S.C. 3727) when a third party makes payment under the contract (for example, when the governmentwide commercial purchase card is used). This prohibition is included in paragraph (b)(25) of FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items, which addresses terms and conditions required to implement statutes or executive orders for commercial items.

Paragraph (b) of the clause at FAR 52.212-4, Contract Terms and Conditions -- Commercial Items, states that a contractor may assign its rights to receive payments due as a result of performance of the contract, but it does not include the prohibition against the assignment of claims if payment is made by a third party. This final rule corrects the inconsistency between FAR 52.212-4(b) and FAR 52.212-5(b)(25) by adding the prohibition to FAR 52.212-4(b).

(5) Clause Flowdown -- Commercial Items: This final rule amends paragraph (c)(1) of FAR 52.244-6, Subcontracts for Commercial Items, to add FAR 52.219-8, Utilization of Small Business Concerns, to the list of clauses the contractor must flow down to subcontractors. In addition, paragraph (c)(2) is amended to clarify that contractors "may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations."

(6) Technical Amendments: This final rule revises various sections of the FAR to update references and make editorial changes. The most significant change is the addition of a web site address for accessing the Federal Directory of Contract Administration Services Components to paragraph (a) of FAR 19.812, Contract Administration, and FAR 42.203, Contract Administration Services Directory (http://www.dcma.mil/casbook/casbook.htm).

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

Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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