Federal Contract Law: New buying regulations: the never-ending story

Joseph J. Petrillo

One of the joys of federal contracting is that there's always something new to learn about and work with. Recent months have brought us several regulatory changes; here are a few of the more important ones.

Federal Supply Schedules. GSA announced it is merging the Federal Supply Service with the Federal Technology Service, and naming the result the Federal Acquisition Service. The broader name reflects the fact that these organizations are in charge of buying services as well as supplies. However, the jewel in the crown of this group is still, officially, the Federal Supply Schedule.

The rules for schedule buys continue to evolve. Federal Acquisition Circular 2005-05 tightens the requirements for orders awarded after limited or no competition. The prior version of the Federal Acquisition Regulation imposed these requirements only on 'sole source' orders. Now, they apply to orders with less than the standard number of considered sources. For orders between $2,500 and the 'maximum order threshold' (usually $500,000 for IT), that number is ordinarily three; for those above this amount, the number is four or more.

The contracting officer can only approve orders up to $500,000. Above that amount, the competition advocate must approve the order, unless it exceeds $10 million. Orders between this amount and $50 million ($75 million for DOD, NASA, and the Coast Guard), require approval of the head of the procuring activity or a high-level designee. Over this amount, only the agency's senior procurement executive can OK the buy.

As with past changes, the new rules try to deal with the burgeoning use of GSA schedule contracts and their controversial role as a way to limit competition. DOD already operates under tighter regulations in this area, and it recently proposed making these tougher ordering rules uniform for both FSS and task and delivery order contracts.

There is still room for improvement here. For instance, agencies are supposed to seek an additional price reduction when the order exceeds the maximum order threshold. However, the rules for supplies and non-hourly services only require that the agency ask for such a reduction from the schedule contractor or contractors found to offer the 'best value,' after a review of available price lists. But how do you determine best value without knowing how much of a price reduction a contractor will offer?

Moreover, the Government Accountability Office is making the rules for conducting schedule buys in case-by-case bid protest decisions. It would help a lot if the Federal Acquisition Regulation assembled, promulgated and expanded on these rules.

Telecommuting. With gas at record prices and in short supply, a new rule on working from home seems timely. FAC 2005-04 makes final an earlier interim regulation implementing the Services Acquisition Reform Act. Under this rule, the government can't bar a contractor from letting its employees telecommute, or downgrade it in a bid evaluation if its workers telecommute. There is an exception when the government makes a special finding that working from home won't meet agency needs, for instance, because of security considerations. The FAR drafters declined an invitation to add incentives for telecommuting, however. They felt this was outside the mandate of SARA. Legislators take note.

Performance-Based Service Contracts. The FAR drafters have converted this interim regulation to a final one, with no significant change. This rule helps performance-based contracts by making them subject to the more flexible procedures for commercial item contracts. OFPP continues to push this numbers-based program. But federal agencies struggle to implement it.

One proposal would help solve this conundrum: Redefine performance-based contracting as a technique, rather than as an end in itself. Then contracts would qualify if some portion were performance-based. Agencies could use incentives tied to metrics for some aspects, but retain traditional methods of control for others. This resolution won't please the purists but might prove more workable in practice.

Joseph J. Petrillo is a lawyer with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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