FAR rule proposal sparks feud

Rep. Tom Davis has asked OMB director Mitchell E. Daniels Jr. to reconsider OFPP's proposal.

The Office of Federal Procurement Policy is butting heads with agency procurement officials, lawmakers and industry groups over a late addition to the wording in a proposed Federal Acquisition Regulation rule.

Administration officials want explicit language in the final Section 803 rule to make sure that the Defense Department no longer uses time and materials contracts when buying commercial items through schedule contracts.

Contracting officers commonly use time and materials contracts to buy IT and other types of services available on Federal Supply Service schedule contracts. And DOD is the largest schedule user; it spent more than $6 billion on 30,000 schedule buys in fiscal 2001.

OFPP has delayed publication of the final version of Section 803, which will require DOD to obtain at least three bids when making schedule purchases of more than $100,000.

Congress incorporated Section 803 into the National Defense Authorization Act of 2002 after reports that DOD contracting officers were awarding sole-source contracts for many schedule purchases. OFPP had planned on releasing the final rule last week. It published the proposal April 1.

An OMB official, who asked not to be named, said OFPP likely will put out an interim rule with a request for comments in the next few weeks to give industry and agencies an opportunity to provide input.

Significant impact

Agency officials and vendors said the change would have a significant impact on GSA schedule buys and DOD's ability to acquire services quickly.

'A fairly large part of the GSA schedules are bought with time and materials contracts, so it would come close to shutting GSA schedules down,' said an industry official. 'This is a major, major change coming out of the blue.'

Another government official said the interpretation would force agencies to move slower and spend more money. A better solution, the official said, would be to train contracting officers to know when a situation calls for a certain type of contract.

The OMB official, however, disputed the claim that the addition was an abrupt policy shift. The source said Part 12 of the FAR clearly requires agencies to use firm-fixed-price contracts when buying commercial items.

'I'm not sure what rule book people in industry are reading off of, but Part 12 is pretty clear,' the official said. 'GSA chose for the schedule to be commercial-item buys so Part 12 would apply, and if GSA is following the law, there shouldn't be any time and materials contracts. OFPP is a little puzzled that there is a wholesale failure to follow the law.'

The official said time and materials contracts can be used for schedule purchases under FAR Part 15, which says the contract must include audit clauses. An audit clause ensures the government gets a fair and reasonable price.

DOD refused to make an official comment about the rule, and GSA administrator Stephen Perry said his agency wants the issue re-solved in a way that lets it provide flexibility to agencies and abide by the law.

DOD sent the final rule to OFPP for approval last month, but OFPP sent it back because the language for multiple-award blanket purchasing agreements, which is what schedules come under, did not explicitly say firm-fixed-price contracts must be used. The language for single-award BPAs did.

'By not mentioning firm-fixed- price contracts, it opens the door for any type of contract to be used,' the OMB official said. 'DOD and GSA both interpreted it this way. All we ask is for the rule to comply with the law.'

Congressional intent

Rep. Tom Davis (R-Va.) sent a letter to OMB director Mitchell E. Daniels Jr. asking OFPP to reconsider the proposal.

'The revision to the regulatory language is well beyond the legislative intent of Congress,' Davis said. '803 is not intended in any way to limit the type of contracts currently available for services through the schedules program.'

There is no evidence that using time and materials contracts under Part 12 has been a problem, said David Marin, a Davis spokesman. 'To the contrary, we have evidence from DOD that it has been extremely valuable in helping to contract in a timely manner for winning the war on terrorism.'

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