DATE: October 22, 2001

SUBJECT: Federal Acquisition Circular (FAC) 2001-01; Miscellaneous Amendments

SOURCE: Federal Register, October 22, 2001, Vol. 66, No. 202, page 53329

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

ACTION: Interim and Final Rules

SYNOPSIS: The Federal Acquisition Regulatory Council is issuing FAC 2001-01 to amend the Federal Acquisition Regulation (FAR) in the following areas: (1) application of the Davis-Bacon Act to construction contracts with options to extend the term of the contract; (2) acquisition of commercial items; (3) prompt payment for cost-reimbursement contracts for services; (4) veterans' employment; (5) Veterans Entrepreneurship and Small Business Development Act of 1999; and (6) the Very Small Business Pilot Program.

EDITOR'S NOTE: In late September, the Government Printing Office (GPO) published a new 2001 edition of the Federal Acquisition Regulation (FAR). Because the pages in the 2001 FAR are sequential and numerical, the replacement pages in FAC 2001-01 are formatted and numbered for the 2001 FAR -- the 2001 series of FACs will not fit in the 1997 version of the FAR as modified by FAC 97-01 through FAC 97-27, so it is practically mandatory that federal contract practitioners either buy a new copy or download one from the Internet.

The 2001 FAR (with FACs for an indeterminate period) is available from the GPO for $220, Stock Number 922-006-00000-8 (toll-free telephone: 866-512-1800; DC Metro: 202-123-4567). It can be downloaded from the Acquisition Reform Network website at http://www.arnet.gov/far in the .pdf format. Of course, the electronic 2001 FAR is available at http://www.arnet.gov/far.

EFFECTIVE DATES: Items 3 and 5 are effective October 22, 2001, and Items 1, 2, 4, and 6 are effective December 21, 2001.


     Items (1) and (4), Linda Nelson at 202-501-1900.

     Item (2), Victoria Moss at 202-501-4764.

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

     Items (5) and (6), Rhonda Cundiff at 202-501-0044.

For general information, contact the FAR Secretariat, Room 4035, GS Building, Washington, DC 20405, 202-501-4755.

SUPPLEMENTAL INFORMATION: (1) Application of the Davis-Bacon Act to Construction Contracts With Options To Extend the Term of the Contract: This final rule amends FAR 22.404, Davis-Bacon Wage Determinations, to implement Department of Labor (DOL) All Agency Memorandum No. 157 (AAM 157), December 9, 1992, which requires incorporation of the current Davis-Bacon Act wage determination at the exercise of each option period in construction contracts. AAM 157 was issued because, unlike the Service Contract Act, the Davis-Bacon Act and its implementing regulations do not include any provisions to require incorporation of new or revised wage determinations at the exercise of each contract option period. After several years of challenges to the authority of DOL to issue the AAM, on July 17, 1997, the DOL Administrative Review Board confirmed that DOL had the authority to issue the AAM. However, the Administrative Review Board ordered that the AAM be clarified and republished, which was done on November 20, 1998. On December 3, 1999, a proposed FAR change was published that would implement the AAM. Eight respondents submitted comments, and the proposed rule is finalized with minor changes.

The primary changes in this final rule are to FAR 22.404, Davis-Bacon Wage Determinations, in which references to requesting Davis-Bacon wage determinations before the issuance of a solicitation are changed to "before the issuance of a solicitation or exercising an option", and references to Davis-Bacon wage determinations remaining effective for the life of the contract are clarified by adding "unless the contracting officer exercises an option to extend the term of the contract".

Of particular note is new FAR 22.404-12, Labor Standards for Contracts Containing Construction Requirements and Option Provisions That Extend the Term of the Contract, which allows the contracting officer to choose from four alternative methods of adjusting the contract price when exercising an option to extend the contract term:

  1. No adjustment in contract price (because the option prices may include an amount to cover estimated increases);

  2. Price adjustment based on a separately specified pricing method, such as application of a coefficient to an annually published unit pricing book incorporated at option exercise (such as the R.S. Means Cost Estimating System or the U.S. Army Computer-Aided Cost Estimating System);

  3. A percentage price adjustment, based on a published economic indicator, to the portion of the contract price designated in the contract as labor costs subject to the provisions of the Davis-Bacon Act; and

  4. A price adjustment based on a specific calculation to reflect the annual increase or decrease in wages and fringe benefits as a result of incorporation of the new wage determination (this method is similar to the Service Contract Act calculations of price adjustments).

In addition, the following new clauses implement these particular methods: FAR 52.222-30, Davis-Bacon Act -- Price Adjustment (None or Separately Specified Method); FAR 52.222-31, Davis-Bacon Act -- Price Adjustment (Percentage Method); and FAR 52.222-32, Davis-Bacon Act -- Price Adjustment (Actual Method).

(2) Acquisition of Commercial Items: Section 803(a)(2)(D) of the Strom Thurmond National Defense Authorization Act of 1999 (Public Law 105-261), and Section 805 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65) both directed that the definition of "commercial items" be revised. To implement these changes, a proposed rule was published (see the August 28, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Acquisition of Commercial Items"). Six sources submitted comments, and the final rule is essentially as proposed except for minor editorial changes.

In the final rule, paragraphs (a) and (e) of the "commercial items" definition in FAR 2.101, Definitions, and the corresponding definitions in FAR 52.202-1, Definitions, are changed as follows:

Also, definitions of "catalog price" and "market price" are added to paragraph (f) to provide guidance for identifying services that may be acquired under FAR Part 12, Acquisition of Commercial Items. (EDITOR'S NOTE: The final rule refers to paragraphs (1), (5), and (6) of the commercial items definition in FAR 2.101. However, the paragraphs in the commercial items definition being changed are (a), (e), and (f). This error will have to be the subject of a correction.)

(3) Prompt Payment Under Cost-Reimbursement Contracts for Services: In the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398), Section 1010, Interest Penalties for Late Payment of Interim Payments Due Under Government Service Contracts, requires agencies to pay an interest penalty whenever they make an interim payment under a cost-reimbursement contract for services more than 30 days after the agency receives a proper invoice for payment from the contractor. On December 15, 2000, the Office of Management and Budget (OMB) issued changes to its Prompt Payment Act regulations at Title 5 of the Code of Federal Regulations (CFR), Part 1315 (see the December 15, 2000, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget; Penalties for Late Payments Under Cost-Reimbursement Service Contracts"). This interim rule implements the OMB Prompt Payment Act regulation changes as follows:

Comments on the interim rule must be submitted by December 21, 2001, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2000-308@gsa.gov.

(4) Veterans' Employment: This final rule changes the name and amends FAR Subpart 22.13, Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (formerly titled "Disabled Veterans and Veterans of the Vietnam Era"), and the related clauses in FAR 52.222 to implement provisions of the Veterans' Employment Opportunities Act of 1998 (Public Law 105-339) and other recent regulatory changes relating to veterans' employment opportunities and reporting. The following are the most significant changes:

(5) Veterans Entrepreneurship and Small Business Development Act of 1999: FAC 97-20 contained an interim rule implementing the Veterans Entrepreneurship and Small Business Act of 1999 (Public Law 106-50), which expanded the eligibility of small business assistance programs to include veteran-owned small businesses and service-disabled veteran-owned small businesses (see the October 11, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-20, Veterans Entrepreneurship and Truth in Negotiations Act Threshold"). It also established a requirement that subcontracting plans submitted under FAR 52.219-9, Small Business Subcontracting Plan, include a goal for subcontracting with veteran-owned small businesses. However, no requirement to include a goal for service-disabled veteran-owned small businesses was included because those were not addressed in that particular part of the legislation.

Twenty-nine respondents submitted comments, including several suggesting that small business subcontracting plans include goals for service-disabled veteran-owned small businesses, but the FAR Council decided to make no changes. However, Section 803 of the Small Business Reauthorization Act of 2000 (Public Law 106-554) was enacted on December 21, 2000, and it added an additional subcontracting plan goal requirement for service-disabled veteran-owned small businesses. Therefore, FAR 52.219-9 is amended to add a new subcontracting plan goal requirement for service-disabled veteran-owned small businesses. Also, the phrase "veteran-owned small businesses" is replaced by "veteran-owned small businesses and service-disabled veteran-owned small businesses" throughout FAR Subpart 19.7, The Small Business Subcontracting Program.

Since comments on the first interim rule have already been addressed, only comments on the service-disabled veteran-owned small business subcontracting goal will be considered. Send comments by December 21, 2001, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2000-302@gsa.gov.

(6) Very Small Business Pilot Program: This final rule revises paragraph (c) of FAR 19.901, General, to change the expiration date for the Very Small Business Pilot Program (which is implemented by FAR Subpart 19.9), from September 30, 2000, to September 30, 2003. The program was established by Section 304 of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103-403), which required that acquisitions between $2,500 and $50,000 in ten Small Business Administration districts be set aside for firms with no more than 15 employees and with average annual receipts of less than $1,000,000. The program expired September 30, 2000, but Section 503 of the Small Business Reauthorization Act of 2000 (Public Law 106-554) extended the pilot program through September 30, 2003.

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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