Government Contracts Legislative and Regulatory Update - September

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Our September edition of “Government Contracts Legislative and Regulatory Update” offers a summary of the relevant changes that took place during the month of August.

Regulatory Update

Industry Update

Regulatory Update

GSA Issues Advance Notice of Proposed Rulemaking on Increasing Order Level Competition for Federal Supply Schedules

On August 19, 2020, the General Services Administration (“GSA”) issued an advance notice of proposed rulemaking regarding the implementation of Section 876 of the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2019 for the Federal Supply Schedule (“FSS”) program. The aim of the FSS program is to provide the federal government with a simplified process of acquiring commercial supplies and services in varying quantities with the added ability of obtaining volume discounts. The FSS program is addressed at Federal Acquisition Regulation (“FAR”) subpart 8.4 and part 38 and at various parts of the GSA Acquisition Regulation (“GSAR”).

Section 876 amended 41 U.S.C. § 3306(c) by providing an exception to the requirement to consider price as an evaluation factor for the award of certain indefinite-delivery, indefinite-quantity contracts and Federal Supply Schedule contracts. Prior to the amendment, offerors responding to FSS solicitations are required to submit commercial sales practice data, or other cost or price information with their proposals. Section 876 gives GSA the discretion to exclude price as an evaluation factor in certain FSS contracts and other indefinite-delivery indefinite-quantity (“IDIQ”) contracts provided that (1) the agency intends to make a contract award to each qualifying offeror, (2) task or delivery orders will be based on hourly rates, and (3) competition takes place at the order level. Under the amendment, to be eligible for award a “qualifying offeror” must be a responsible source; submit a proposal that conforms to the requirements of the solicitation; meet all technical requirements; and be otherwise eligible for award.

Comments on the advance notice are due by September 18, 2020. (85 Fed. Reg. 50,989, Aug. 19, 2020).

FAR Council Proposed Rule Regarding the Analysis for Equipment Acquisitions

On August 24, 2020, the Department of Defense (“DoD”), GSA, and the National Aeronautics Space Administration (“NASA”) (collectively the “FAR Council”), issued a proposed rule to amend the FAR to implement Section 555 of the Federal Aviation Administration (“FAA”) Reauthorization Act of 2018. Section 555 (i) requires an agency to acquire equipment using the method of acquisition that is most advantageous to the Government based on a case-by-case analysis of comparative costs and other factors (to include the factors in FAR section 7.401); (ii) identifies methods of acquisition that must be considered, at a minimum, in the analysis; and (iii) requires the FAR to implement the requirements of the section and identify the factors agencies should or shall consider to perform the case-by-case analysis.

The proposed rule amends FAR subpart 7.4 to “require the comparison of purchase, short-term rental or lease, long-term rental or lease, interagency acquisition, and agency acquisition agreements with State or local governments as a method of acquisition for equipment; include the term ‘rent,’ where applicable; and add factors to be considered when evaluating various methods of acquisition.”

Comments on the proposed rule are due by October 23, 2020. (85 Fed. Reg. 52,081, Aug. 24, 2020).

FAR Council Issues Interim Rule Regarding Prohibition on Contracting with Entities Using Certain Telecommunications and Video Surveillance Services or Equipment

On August 27, 2020, the FAR Council issued a second interim rule, effective October 26, 2020 amending the FAR to implement Section 889(a)(1)(B) of the John S. McCain NDAA for FY 2019. Section 889(a)(1)(B), effective August 13, 2020, prohibits executive agencies from entering into, or extending or renewing, a contract with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. The Section covers certain telecommunications equipment and services produced or provided by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of those entities) and certain video surveillance products or telecommunications equipment and services produced or provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of those entities).

To implement section 889(a)(1)(B) of the NDAA for FY 2019, the FAR Council published the first interim rule at 85 Fed. Reg. 42,665 on July 14, 2020. The first interim rule added a representation at FAR 52.204-24(d)(2), Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment, which required offerors to represent on an offer-by-offer basis if the offeror “does” or “does not” use covered telecommunications equipment or services, or use any equipment, system, or service that uses covered telecommunications equipment or services, and if it does, require the offeror to provide additional disclosures.

This second interim rule adds a new annual representation at FAR 52.204-26(c)(2), Covered Telecommunications Equipment or Services—Representation, requiring an offeror to represent annually, after conducting a reasonable inquiry, whether it uses covered telecommunications equipment or services, or any equipment, system, or service that uses covered telecommunications equipment or services. Alternatively, offerors may make this representation at paragraph (v)(2)(ii) of FAR 52.212-3, Offeror Representations and Certifications-Commercial Items, thereby skipping the offer-by-offer representation within the provision at FAR 52.204-24(d)(2), Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment.

Comments on the second interim rule are due by October 26, 2020. (85 Fed. Reg. 53,126, Aug. 27, 2020).

DoD Issues Advance Notice of Proposed Rulemaking Regarding Small Business Innovation Research Program Data Rights

On August 31, 2020 the DoD issued an advance notice of proposed rulemaking regarding the implementation within the Defense Federal Acquisition Regulation Supplement (“DFARS”) of the data rights portions of the Small Business Innovation Research Program (“SBIR”) and Small Business Technology Transfer (“STTR”) Program Policy Directives. SBIR and STTR programs are governed by 15 U.S.C. § 638, which provides specialized coverage regarding intellectual property developed under those programs. On April 2, 2019, the Small Business Administration (“SBA”) issued a final rule combining the two directives into one which went into effect on May 2, 2019. The combined directive included several revisions affecting data rights coverage to include:

  • Establishing a single, non-extendable, 20-year SBIR/STTR data protection period, rather than a 4-year period that can be extended indefinitely;
  • Granting the Government licensed use for Government purposes after the expiration of the SBIR/STTR data protection period, rather than unlimited rights;
  • Establishing or revising several important definitions to harmonize the terminology used in the Policy Directive and the FAR and DFARS implementations, while allowing for agency-specific requirements (e.g., agency-specific statutes).

Because the DoD’s approach to allocating data rights generally is based primarily on the source of development funding for the technology, implementation of the SBIR/STTR approach must operate as an otherwise exception to DoD’s approach. DoD is seeking comments on its proposed approach in the advance notice. Comments on the advance notice are due by October 30, 2020. (85 Fed. Reg. 53,758, Aug. 31, 2020).

DoD Issues Proposed Rule Regarding Use of Supplier Performance Risk System Assessments

On August 31, 2020, the DoD issued a proposed rule to amend the DFARS to update the policies and procedures for use of the Supplier Performance Risk System (“SPRS”). The SPRS is the DoD’s single authorized application to retrieve supplier’s performance information. The application retries quality and delivery data from Government systems to calculate “on time” delivery scores and quality classifications. SPRS generates three risk assessments (item risk, price risk, and supplier risk) using the SPRS Evaluation Criteria and calculations at https://www.sprs.csd.disa.mil/pdf/SPRS_DataEvaluationCriteria.pdf. Contracting officers use the overall risk assessment generated by the SPRS module to evaluate quotes and offers received under all solicitations for supplies and services, including solicitations using part 12 procedures for the acquisition of commercial items. The rule proposes several amendments to the DFARS to include amending the DFARS by requiring contracting officers to use the supplier risk assessments available in SPRS as a factor in determining responsibility at DFARS 209.105-1. It is expected that the supplier risk assessment reduces supply chain risk as it highlights for the contracting officer the probability that an award made to a supplier may subject the procurement to the risk of unsuccessful performance or to supply chain risk.

Comments on the proposed rule are due by October 30, 2020 (85 Fed. Reg. 53,748, Aug. 31, 2020).

DoD Issues Proposed Rule Regarding Prohibition on Contracting with Persons that have Business Operations with the Maduro Regime

On August 31, 2020 the DoD issued a proposed rule to implement Section 890 of the NDAA for FY 2020. Section 890 prohibits contracts for the procurement of goods and services with any person that has business operations with an authority of the government of Venezuela that is not recognized as the legitimate government of Venezuela by the United States Government, subject to exceptions. The proposed rule adds DFARS 225.7019, Prohibition on Contracting with the Maduro Regime. This section provides to contracting officers a new solicitation provision, DFARS 252.225-70XX, Representation Regarding Business Operations with the Maduro Regime, and contract clause, DFARS 252.225-70YY, Prohibition Regarding Business Operations with the Maduro Regime, for use in solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, unless an exception applies. Pursuant to the solicitation provision, an offeror represents, by submission of its offer, that the offeror does not conduct any prohibited business operations with persons or entities with the Maduro regime or the government of Venezuela, or the offeror has a valid license to operate in Venezuela issued by the Office of Foreign Assets Control of the Department of the Treasury. Under the contract clause, DoD contractors are prohibited from entering into a contract or subcontract for the procurement of products or services with any person that has business operations with an authority of the government of Venezuela that is not recognized as the legitimate government of Venezuela by the United States Government, subject to the listed exceptions, as a condition of the contract.

Comments on the proposed rule are due by October 30, 2020. (85 Fed. Reg. 53,751, Aug. 31, 2020).

DoD Issues Proposed Rule Regarding Validation of Proprietary and Technical Data

On August 31, 2020, the DoD issued a proposed rule amending the DFARS to implement Section 865 of the NDAA for FY 2019. Section 865 amends several congressional adjustments to the statutory presumption of development at private expense for commercial items in the validation procedures at paragraph (f) of 10 U.S.C. § 2321 which governs the validation of asserted restrictions on technical data. The proposed rule tracks the amendments in Section 865 with the primary coverage found at paragraph (c) of DFARS 227.7103-13, Government right to review, verify, challenge, and validate asserted restrictions, and paragraph (b) of DFARS 252.227-7037, Validation of Restrictive Markings on Technical Data.

The proposed rule adds language to DFARS 227.7103-13(c) to clarify that the statutory threshold for all challenges, including those for commercial items, is that a contracting officer must have reasonable grounds to question the validity of the asserted restriction. Under the proposed rule, contracting officers must include, to the maximum extent practicable, sufficient information in the challenge notice to reasonably demonstrate that the commercial item was not developed exclusively at private expense. Amendments were made to DFARS 252.227-7037(b) to clarify that the presumption of development at private expense for commercial items applies to the issuance of a challenge and contracting officers are directed to provide the same sufficient reasonable notice.

Comments on the proposed rule are due by October 30, 2020. (85 Fed. Reg. 53,755, Aug. 31, 2020).

DoD Issues Final Rule Regarding Use of Defense Logistics Agency Energy as a Source of Fuel

On August 31, 2020, the DoD issued a final rule, effective immediately, amending the DFARS to permit the use Defense Logistics Agency (“DLA”) Energy as a source of Defense Working Capital Fund fuel for contractors performing under certain contracts, other than cost reimbursement contracts. DoD contractors provide supplies and services that require the use of ground, aviation, or marine fuels in performance of their contracts. In certain instances these fuels are required in locations where there are no commercial fuel sources available, the quality of fuel is degraded, or the commercial fuel supply is inadequate. As a result, the availability of reliable and quality fuel becomes critical for contract performance. The final rule seeks to fill this gap recognizing that DLA Energy has a worldwide bulk-fuel supply chain that can provide military specification fuels, as well as most commercial specification ground fuels (e.g., gasoline, diesel, and heating fuel), on military bases. (85 Fed. Reg. 53,683, Aug. 31, 2020).

DoD Issues Class Deviation Regarding Section 890 Pilot Program to Accelerate Contracting and Pricing Processes

On August 14, 2020, the DoD issued Class Deviation 2020-O0020, rescinding and superseding Class Deviation 2019-O0008, to further implement the pilot program authority provided by Section 890 of the NDAA for FY 2019, as amended by Section 825 of the NDAA for FY 2020. As amended by Section 825, Section 890, authorizes the DoD to conduct a pilot program for contract actions in excess of $50 million, which allows price reasonableness determinations to be based on actual cost and pricing data for purchases of the same or similar products for the DoD, and a reduction of the cost and pricing data to be submitted in accordance with 10 U.S.C. 2306a. The Class Deviation provides that for contract actions approved by the Director, Defense Pricing and Contracting (“DPC”) - Pricing and Contracting Initiatives (“PCI”) for participation in the pilot program, the contracting officer may strategically establish the extent, structure, and level of detail of the historical actual cost data the contractor will be required to submit in lieu of providing complete certified cost or pricing data.

The Class Deviation is effective immediately and will remain in effect until January 2, 2023 or until otherwise rescinded.

DoD Issues Class Deviation Regarding Section 3610 Reimbursement Requests

On August 17, 2020, the DoD issued Class Deviation 2020-O0021 providing guidance to contracting officers for reviewing and processing contractor requests for reimbursement under Section 3610 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Section 3610 grants contracting officers discretion to modify contracts and other agreements, without consideration, to reimburse contractors for paid leave a contractor provides to keep its employees or subcontractors in a ready state during the public health emergency declared on January 31, 2020, for Coronavirus Disease 2019 (“COVID-19”). Notably, Section 3610 does not contain language providing retroactive coverage for reimbursement prior to March 27, 2020. However, the Class Deviation notes that Section 3610 does not prohibit the DoD from reimbursing a contractor for paid leave prior to March 27, 2020, using contract authorities otherwise available to the Department. Accordingly, contracting officers may, at their discretion, consider reimbursing such paid leave costs as other COVID-19 related costs. The Class Deviation goes on to provide contracting officers with guidance on the handling of reimbursement requests by affected contractors.

The Class Deviation is effective immediately and will remain in effect until otherwise rescinded.

DoD Issues Class Deviation Prohibiting Providing Funds to the Enemy and Authorization of Additional Access to Records

On August 28, 2020, the DoD issued Class Deviation 2020-O0022, rescinding and superseding Class Deviation 2020-O0001, implementing Section 841 of the NDAA for FY 2015, as amended by Section 822 of the NDAA for FY 2020, and Section 842 of the NDAA for FY 2015. Section 841 grants the authority to terminate or void contracts and to restrict future awards directly or indirectly to any person or entity that is actively opposing United States or coalition forces involved in a contingency operation in which members of the Armed Forces are actively engaged in hostilities. Further, Section 842 grants the authority for additional access to contractor and subcontractor records to the extent necessary to ensure that funds available under covered contracts are not provided directly or indirectly to any person or entity.

Pursuant to the Class Deviation, contracting officers shall include the clauses provided in solicitations and contracts, included those using FAR Part 12 procedures, with an estimated value in excess of $50,000 that will be performed outside the United States and its outlying areas in support of a contingency operation in which members of the Armed Forces are actively engaged in hostilities.

The Class Deviation is effective immediately and will remain in effect until December 31, 2023 or until otherwise rescinded.

Industry Updates

Executive Order on Aligning Federal Contracting and Hiring Practices With the Interests of American Workers

On August 3, 2020, President Donald Trump issued Executive Order 13940, Aligning Federal Contracting and Hiring Practices With the Interests of American Workers, designed to limit the use of foreign workers on federal contracts and subcontracts. Specifically, the Executive Order requires agencies to review and assess for fiscal years 2018 and 2019 (i) whether contractors (including subcontractors) used temporary foreign labor for contracts performed in the United States, and, if so, the nature of the work performed by temporary foreign labor on such contracts; whether opportunities for United States workers were affected by such hiring; and any potential effects on the national security caused by such hiring; and (ii) whether contractors (including subcontractors) performed in foreign countries services previously performed in the United States, and, if so, whether opportunities for United States workers were affected by such offshoring; whether affected United States workers were eligible for assistance under the Trade Adjustment Assistance program authorized by the Trade Act of 1974; and any potential effects on the national security caused by such offshoring. Further, the Executive Order directs Secretaries of Labor and Homeland Security to assess and propose action regarding any negative impact of contractors’ and subcontractors’ temporary foreign labor hiring practices or offshoring practices on the economy and efficiency of Federal procurement and on the national security.

Additionally, the Secretaries of Labor and Homeland Security are directed to take action within 45 days of the Executive Order to protect U.S. workers from any adverse effects on their wages and working conditions caused by U.S. companies employing H-1B visa holders, including ensuring that employers of H-1B visa holders adhere to the requirements of section 212(n)(1) of the Immigration and Nationality Act (8 U.S.C. 1182(n)(1)).

Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States

On August 6, 2020, President Donald Trump issued Executive Order 13944, Combating Public Health Emergencies and Strengthening National Security by Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States, requiring the U.S. government to purchase “essential” medicines and medical supplies produced domestically, rather than abroad. Specifically, the Executive Order seeks the following:

  • accelerate the development of cost-effective and efficient domestic production of Essential Medicines and Medical Countermeasures and have adequate redundancy built into the domestic supply chain for Essential Medicines, Medical Countermeasures, and Critical Inputs;
  • ensure long-term demand for Essential Medicines, Medical Countermeasures, and Critical Inputs that are produced in the United States;
  • create, maintain, and maximize domestic production capabilities for Critical Inputs, Finished Drug Products, and Finished Devices that are essential to protect public safety and human health and to provide for the national defense; and
  • combat the trafficking of counterfeit Essential Medicines, Medical Countermeasures, and Critical Inputs over e commerce platforms and from third-party online sellers involved in the government procurement process.

Agencies are directed to consider a variety of actions to increase their domestic procurement of Essential Medicines, Medical Countermeasures, and Critical Inputs, and to identify vulnerabilities in the U.S.’s supply chains for these products. To this end, agencies are granted flexibility to increase their domestic procurement as indicated in the Executive Order.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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