The FAR Councils issued an interim rule, effective October 14, 2009, revising the circumstances under which services not offered and sold commercially can still qualify as commercial services. This is important for a couple of reasons, but probably most importantly, because commerciality can eliminate the requirement for the submission of cost or pricing data and can limit the amount of Government contracting requirements to which a company is subjected. The new interim rule now permits a Contracting Officer determination of commerciality even where services are not offered and sold competitively in substantial quantities in the commercial marketplace. 

Continue Reading Reining in Use of “Of A Type” Commercial Service Contracting

On October 14, 2009, the Civilian Acquisition Council and the Defense Acquisition Regulation Council issued an interim rule that limits the use of award-fee contracts, modifies how a contractor earns an award fee, and prohibits the rollover of unearned award fees. The interim rule implements § 814 of the John Warner National Defense Authorization Act (NDAA) for Fiscal Year 2007, § 867 of the Duncan Hunter NDAA for Fiscal Year 2009, and the Office of Federal Procurement Policy Guidance Memorandum dated December 4, 2007 entitled "Appropriate Use of Incentive Contracts." The interim rule significantly revises Federal Acquisition Regulation (FAR) Part 16, adds FAR Part 16.401(e), and makes other general housekeeping changes.  

Continue Reading FAR Councils Issue Interim Rule Taking Aim at the Use of Award-Fee Contracts

In November 2002, the FAR Councils eliminated the so-called "paid cost" rule from the FAR, which had previously prevented federal prime contractors other than small businesses from recognizing incurred subcontractor costs for purposes of progress billing until "payment by cash, check, or other form of actual payment" had actually been made. See 67 Federal Register 70520 (Nov. 22, 2002). The Government form used to request progress payments, the Standard Form (SF) 1443, Request for Progress Payments, implemented the paid cost rule by requiring large contractors to identify "paid costs eligible under progress payments clause" (Line 9) and "incurred costs eligible under progress payments clause" (Line 10). See FAR 53.301-1443 (2008) (last updated in October 1982). Bizarrely, however, when the paid cost rule was eliminated in 2002, the SF 1443 was not updated to remove these two lines. Now — a mere six years and eight months since the elimination of the paid cost rule — the FAR Councils have finally issued a revised SF 1443, removing Lines 9 and 10 and thereby eliminating the last vestiges of the long-defunct rule. See 74 Federal Register 28430 (Jun. 15, 2009).

Continue Reading Working Like a Highway Road Crew — Government Finally Amends SF 1443 to Eliminate References to “Paid Cost Rule,” a Mere Seven Years After the Fact

As in — “What gives the DCAA the right to take the contractor’s money?”  DCAA would tell you that Form 1s are a long established mechanism for Governmental “self-help” in reclaiming funds from Government contractors.  And based on some recent audit guidance, it looks like Form 1 withholdings are fast becoming the “weapon of choice” for auditors.  But what the DCAA fails to acknowledge in its memoranda is that Form 1 withholdings actually are an illegitimate circumvention of the FAR.

Continue Reading DCAA Form 1 Withholdings: What Gives?

Effective October 17, 2008, the Cost FAR Councils will implement revisions to the policies and procedures for contract debts under FAR Subpart 32.6.  The changes cover all contract debts to the Government resulting from contractor’s compliance or failure to comply with contract terms, and irrespective of how, or by whom, the debt is identified.  The revisions grew out of DoD’s recommendations published on May 26, 2005, and are being applied Government-wide “to improve contract debt controls and procedures, and to ensure consistency within/between existing regulations.”  73 Fed. Reg. 53997.

Continue Reading Contract Debts

The Case of the Missing CAS Disclosure Statement

NASA has terminated for convenience a $750 million cost plus award fee contract because the awardee failed to submit the required Cost Accounting Standards Disclosure Statement and because, as a result, NASA could not, and did not, evaluate the purportedly winning proposal against the missing Statement.  NASA’s announcement came in response to a GAO bid protest over the space agency’s handling of the procurement for “next-generation” space suits.  NASA’s corrective action, which is being challenged by the protester, would reopen discussions and permit “limited proposal revisions.”  The nature and scope of those “limited proposal revisions” remain undefined as of this date.  It remains to be seen whether NASA will attempt to limit the reopening of the competition to the retroactive submission of a disclosure statement by the previous awardee.  See Wall Street Journal, NASA Seeks to Reopen Spacesuit Contest, August 16, 2008; Page B5.

Sheppard Mullin represents the protester in the above-referenced proceedings.

Continue Reading “Cost Corner” for September 2008

Executive Compensation

The Office of Federal Procurement Policy has established the FY 2008 compensation cap for the contractors’ five most highly compensated executives at $612,196.  Contractors are free to compensate executives above that amount, but pursuant to FAR 31.205-6(p) the cap sets the limit for how much of the compensation is reimbursable under government contracts.  The yearly amount is derived from commercial surveys and reflects “the median (50th percentile) amount of compensation accrued over a recent 12 month period for the top five highest paid executives of publicly traded companies with sales over $50 million.”  73 FR 15,779.

Continue Reading “Cost Corner” for April 2008

CAS Exemption for Overseas Contracts

On February 13, the CAS Board announced that it will retain without change the CAS exemption for contracts executed and performed outside the US, its territories or possessions, found at 48 CFR 9903.201-(1)(b)(14).  The Board had issued a staff discussion paper in 2005, inviting comments on whether the exemption needed to be revised in light of earlier changes in the statutory authority for the CAS.  Commentators were unanimously opposed to any revisions, citing, among other reasons, potential difficulties in administering the CAS overseas.  73 FR 8259.

Continue Reading “Cost Corner” for March 2008