DATE: October 25, 2002

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Competition Requirements for Purchase of Services Under Multiple Award Contracts

SOURCE: Federal Register, October 25, 2002, Vol. 67, No. 207, page 65505

AGENCIES: Department of Defense (DOD)

ACTION: Final Rule

SYNOPSIS: DOD is amending DFARS Subpart 208.4, Federal Supply Schedules, and DFARS Subpart 216.5, Indefinite-Delivery Contracts, to implement the requirement in Section 803 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107) that requires DOD to issue policy requiring competition in the purchase of services under multiple award contracts.

EDITOR'S NOTE: For more on the proposed rule, see the April 1, 2002, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Competition Requirements for Purchase of Services Under Multiple Award Contracts."

For more on the acquisition-related provisions of the FY 2002 National Defense Authorization Act, see the January 2, 2002, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2002."

DATES: This final rule is effective October 25, 2002, and applies to all orders for services placed under multiple award contracts on or after October 25, 2002, regardless of whether the multiple award contracts were awarded before, on, or after that date.

FOR FURTHER INFORMATION CONTACT: Susan Schneider, Defense Acquisition Regulations Council, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; 703- 602-0326; fax: 703-602-0350. Cite "DFARS Case 2001-D017" when referring to this final rule.

SUPPLEMENTAL INFORMATION: Public Law 107-107, Section 803, Competition Requirement for Purchase of Services Pursuant to Multiple Award Contracts, requires that each DOD purchase of services over $100,000 made under a multiple award contract be made on a competitive basis unless a contracting officer waives the requirement under certain specific circumstances. To qualify as being made "on a competitive basis," a "fair notice" must be provided to all contractors offering such services under the multiple award contract. However, a notice may be provided to "fewer than all contractors" if notice is provided to "as many contractors as practicable" and "offers [are] received from at least three qualified contractors..."

On April 1, 2002, a proposed rule was published that would add two similar DFARS sections to implement this statutory requirement: DFARS 208.404-70, Additional Ordering Procedures for Services, to address the competition requirements for GSA's multiple award schedule (MAS) program (more commonly known as Federal Supply Schedules (FSS)); and DFARS 216.505-70, Orders for Services Under Multiple Award Contracts, to address the competition requirements for multiple award indefinite-quantity contracts other than the MAS. In addition, a public meeting was held on April 29, 2002, to discuss the proposed rule and hear the views of interested parties on what they thought are the key issues. Seventy-one respondents submitted written comments on the proposed rule. Because of the comments, the following changes are made as the rule is finalized:

In addition, the introductory material to the final rule contains the following statement: "DOD and civilian agency contracting professionals that place orders under multiple award contracts using DOD funds, and contractors that sell services on multiple award contracts, should receive training on the new procedures for placing orders over $100,000 for services. DOD has developed many training tools on Section 803 and will be providing training in the DC metro area. Please visit the Defense Procurement Home Page, "Interest Items" drop-down box, for Section 803 training materials and lists of training opportunities at http://www.acq.osd.mil/dp. Additional questions regarding training should be directed to Melissa Rider at melissa.rider@osd.mil or 703-695-1098."

EDITOR'S NOTE: After DOD had evaluated all the comments and submitted its final rule for approval to the Office of Management and Budget (OMB), OMB inserted a requirement in the final rule that orders against GSA's FSS contracts must be firm-fixed-price. The reason for OMB's addition was that MAS contracts are, by definition, for commercial supplies and services (see paragraph (a) of FAR 8.401, General), and FAR Part 12, Acquisition of Commericial Items, governs such acquisitions. FAR 12.207, Contract Type, requires that agencies use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items. FAR 12.207 goes on to state that "use of any other contract type to acquire commercial items is prohibited."

However, GSA permits orders against its FSS contracts for services to be on a time-and-materials or labor-hours basis. This "authorization" is in GSA's ordering procedures for services requiring a statement of work (http://www.gsa.gov/Portal/content/offerings_content.jsp?contentOID=116992&contentType=1004), and GSA claims it has the authority to override the FAR when it comes to the FSS because FAR 8.402, Applicability, states, "Procedures in this subpart [FAR Subpart 8.4] apply to orders placed against Federal Supply Schedules. Occasionally, GSA may establish special ordering procedures." GSA and OMB have been at odds over this for some time, and apparently OMB thought the time was right to get rid of time-and-material and labor-hours orders.

Many in industry were outraged at the maneuver, since a significant number of orders against FSS contracts for information technology services, and many contracts in private industry for similar services, are time-and-materials or labor-hours because of the difficulty in estimating the amount of work needed to perform the tasks with the degree of certainty needed for fixed-prices. In addition, several influential members of Congress said either (1) banning time-and-materials and labor-hours orders would be foolhardy, or (2) such a ban should be the subject of a separate rule.

OMB decided to back down and take the ban out of the final rule. Nevertheless, the introductory material states, "The Administrator of the Office of Federal Procurement Policy (OFPP) [a part of OMB] has determined that additional clarification is necessary with respect to the structuring of orders under the MAS...The OFPP Administrator intends to work with the other FAR Council members to develop appropriate revisions to current FAR coverage to address the use of time-and-materials and labor-hour contracts for commercial item acquisitions, including safeguards that are needed to effectively protect taxpayer interests when these contractual arrangements are used under FAR Part 12." So be on the lookout for a proposed rule on this subject.

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

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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