Revised FAR widens avenue for contract discussions

The revised Federal Acquisition Regulation is filled with opportunities for vendors and
buying agencies to discuss real issues before the awards are granted. The opportunities
stem from the greater flexibility in contract terms and conditions than existed in the
pre-reform days. The new FAR represents best prospects for novel approaches when
you’re buying commercial items. Luckily, most information technology products fall
into this category.

The versatility of the current process comes from combining the rules for commercial
items with those for negotiated procurements. Together, the rules enable the parties in a
federal contract to fashion terms and conditions quite different from the ones
they’re probably used to.

Formerly, rules for negotiated procurements always included a procedure in which the
government conducted discussions with prospective contractors, but the procedure was
subject to restrictions.

Discussions had to include notification of any deficiencies or significant weaknesses
in proposals. Other permissible topics included aspects of a proposal that were unclear or

Some topics, though, were taboo. For instance, the government could not leak one
bidder’s innovative solution to another, a process called technical transfusion.
Including required topics while avoiding prohibited ones resulted in a highly patterned
negotiation process that resembled a contracting ritual more than actual give-and-take.

The new rules include the old requirements for discussions of deficiencies and
significant weaknesses. But now you must also include such things as cost, price,
technical approach, past performance, and terms and conditions “that could, in the
opinion of the contracting officer, be altered or explained to enhance materially the
proposal’s potential for award.”

The restriction on technical transfusion continues in the new rules, and the government
still can neither leak one bidder’s price to another nor disclose other source
selection information. The buying agency can, however, suggest that a price is too high or
low, and it can release the government estimate to all bidders. Finally, the government
cannot favor one bidder over another in negotiations.

Now that discussions can include a bidder’s technical approach and contract terms
and conditions, all sorts of possibilities open up. Certain contract clauses might have an
important impact on price or preclude a useful technical approach. These are now on the
table during negotiations. And because the discussions occur after the submission of
initial proposals, it is implicit that the clauses included in a solicitation can be
changed later.

The new rules will have the most impact on contracts for commercial items. FAR Part 12
exempts the contracts from certain mandatory clauses and includes different versions of
standard contract clauses for commercial-item buys.

Contractors will have to read the special clauses, even though they were familiar with
the standard versions.

Even better, some of these new clauses are not mandatory, and FAR permits contracting
officers to tailor them.

The clauses that are open to modification include such sacred cows as the changes
clause, the termination-for-the-government’s-convenience clause and the
order-of-precedence provision.

Also open to modification are the terms and conditions for warranties, limitation of
liability, excusable delay and termination for cause.

The lodestar for such modifications is that the clauses should mirror, as much as
possible, “customary commercial practice for the item being acquired.” In fact,
departing from commercial practice requires a waiver.

There are still some limitations. Some clauses derive from statutes and therefore
can’t be changed. Also, the government is subject to other legal restrictions that
can limit the scope of discussions. For instance, the annual nature of most appropriations
limits the maximum contract term to which the government can be bound.

Another important consideration is when a buyer must seek multiple bids because of the
legal requirement for fairness to all competitors.

Other limitations are more institutional than legal. Some contracting officials are
uncomfortable with their new-found freedom. Habit and custom can be strong obstacles to

But even within these limits, the scope of negotiations is now much broader than
before. The parties can have a lot more to say about what the ultimate contract will look
like. Let the bargaining begin. 

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo &
Powell, PLLC. E-mail him at [email protected].


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