DFARS Rule on Use of Trusted Sources for Electronic Parts Finalized

The Department of Defense has finalized the rule in DFARS Case 2014-D005, Detection and Avoidance of Counterfeit Electronic Parts—Further Implementation, which addresses required sources of electronic parts for defense contractors and subcontractors.

The new requirements are added at revised DFARS 246.870, Contractor counterfeit electronic part detection and avoidance, and in a new clause at DFARS 252.246-7008, Sources of Electronic Parts. Definitions for key terms are added at DFARS 202.101.

Under the new clause and revised DFARS 246.870-2, Policy, the contractor must acquire electronic parts that are in production by the original manufacturer or an authorized aftermarket manufacturer, or currently available in stock from the original manufacturers of the parts, their authorized suppliers, or suppliers that obtain such parts exclusively from the original manufacturers of the parts or their authorized suppliers.

If electronic parts are not in production by the original manufacturer or an authorized aftermarket manufacturer, and not currently available in stock from one the allowable sources, the contractor must obtain electronic parts from contractor-approved suppliers using established counterfeit prevention industry standards and processes. The contractor assumes responsibility for the authenticity of parts provided by contractor-approved suppliers, and their selection is subject to review and audit by the contracting officer.

The contractor must promptly notify the CO in writing if it (1) obtains an electronic part from another source due to nonavailability from a permitted source, or from a subcontractor (other than the original manufacturer) that refuses to accept flowdown of the clause; or (2) cannot confirm that an electronic part is new or previously unused and that it has not been comingled in supplier new production or stock with used, refurbished, reclaimed, or returned parts.

The contractor is also responsible for inspection, testing, and authentication, in accordance with existing applicable industry standards, and it must make documentation of inspection, testing, and authentication of such electronic parts available to the government upon request.

Further, if the contractor is not the original manufacturer of, or authorized supplier for, an electronic part, it must have risk-based processes that enable tracking of electronic parts from the original manufacturer to product acceptance by the government.

If the contractor cannot establish this traceability from the original manufacturer for a specific electronic part, it is responsible for inspection, testing, and authentication, in accordance with industry standards. Also, the contractor must maintain documentation of traceability, or the inspection, testing, and authentication required when traceability cannot be established, in accordance with the records retention requirements at FAR Subpart 4.7, and it must make the documentation available to the government upon request.

Under the prescription at DFARS 246.870-3(b), the new clause will be used in all solicitations and contracts, including those for commercial items, when procuring electronic parts; end items, components, parts, or assemblies containing electronic parts; or services, if the contractor will supply electronic parts or components, parts, or assemblies containing electronic parts as part of the service.

The new clause is not limited to contractors subject to the Cost Accounting Standards, and it applies to small businesses. Also, prime contractors must include the substance of the clause in subcontracts that are for electronic parts or assemblies containing electronic parts.

The effective date of the rule is August 2, 2016. For the text of the final rule, see 81 FR 50635.

SBA Creates Mentor-Protégé Program for All Small Businesses

A July 25, 2016, rule issued by the Small Business Administration finalizes, with changes, a proposed rule creating a comprehensive new mentor-protégé program for all small businesses.

The rule implements provisions of the Small Business Jobs Act of 2010 (PL 111-240) and the National Defense Authorization Act for Fiscal Year 2013 (PL 112-239). The major parts of the rule address SBA’s mentor-protégé program and SBA’s treatment of joint ventures. Section 1641 of the NDAA authorized SBA to establish a mentor-protégé program for all small business concerns that is similar to the existing mentor-protégé program for participants in the 8(a) Business Development program.

SBA uses the 8(a) mentor- protégé program as a business development tool in which mentors provide diverse types of business assistance to eligible 8(a) protégés. This assistance can include technical assistance, management assistance, financial assistance through equity investments and loans, subcontracts, and assistance in performing federal prime contracts through joint venture arrangements.

New SBA 125.9 creates a mentor-protégé program that covers service-disabled veteran-owned, HUBZone, women-owned, and all other small business concerns. SBA designed the new program to require approved mentors to provide assistance to protégé firms to enhance the capabilities of protégés, assist protégés with meeting their business goals, and improve the ability of protégés to compete for contracts.

The rule allows approved mentor-protégé relationships to seek to perform joint ventures for any contracts for which the protégé qualifies as eligible, and clarifies the conditions for creating and operating joint venture partnerships, including the effect of these partnerships on mentor- protégé relationships.

The rule revises the joint venture provisions in SBA 125.15(b), SBA 125.18, SBA 126.616, and SBA 127.506 to align then with the requirements of the 8(a) program, and adds new SBA 125.8 to specify the requirements for joint ventures between small business protégé firms and their mentors.

The rule also amends the definition of joint venture in SBA 121.103(h) to explicitly require joint venture agreements to be in writing and to specify that if a joint venture exists as a formal separate legal entity, it may not be populated with individuals intended to perform contracts awarded to the joint venture.

Further, the rule requires all partners to a joint venture agreement that performs a SDVO, HUBZone, WOSB, or small business set-aside contract to certify to the contracting officer and SBA prior to performing the contract that they will perform the contract in compliance with the joint venture regulations and with the joint venture agreement.

The rule also makes changes to SBA’s size, 8(a) Program, Office of Hearings and Appeals, and HUBZone regulations concerning ownership and control, changes in primary industry, standards of review, and interested party status for appeals.

SBA received 113 comments on the proposed rule. SBA received the most comments on a proposed amendment to SBA 124.112 that would have allowed SBA to change the primary North American Industry Classification System code of an 8(a) participant where the greatest portion of the participant’s total revenues during a three-year period has evolved from one NAICS code to another.

The final version of the rule alleviates the concern that SBA would unilaterally change a participant’s primary NAICS code without input from the participant by clarifying that there will be a dialogue between SBA and the affected participant before any NAICS code change is made. The final rule also provides that a change will not occur if the participant provides a reasonable explanation as to why the identified primary NAICS should remain the same.

The final rule goes into effect on August 24, 2016. For the text of the rule, see 81 FR 48557.

Supreme Court Rejects Limits on VOSB Set-Asides

Reversing the Court of Appeals for the Federal Circuit, the Supreme Court held the requirement for the Department of Veterans Affairs to use Rule of Two set-aside procedures is not limited to contracts necessary to meet the VA’s veteran-owned small business contracting goals and applies to orders under the Federal Supply Schedule (Kingdomware Technologies, Inc. v. U.S.). The case arose when the VA awarded an FSS contract for emergency notifications services to a non-VOSB vendor. The protester, a service-disabled VOSB, first filed in the Government Accountability Office, contending the Veterans Benefits, Health Care, and Information Technology Act of 2006 (38 USC 8127 and following) always bars the VA from using the FSS without first invoking the Rule of Two. At §8127(d), the Act provides that the VA “shall award contracts on the basis of competition restricted to [VOSBs] if the contracting officer has a reasonable expectation that two or more [VOSBs] will submit offers and that the award can be made at a fair and reasonable price ….”

GAO and Lower Courts

GAO sustained the protest, but after the VA declined to follow GAO’s recommendation to resolicit the requirement as an SDVOSB set-aside, the protester filed in the Court of Federal Claims. The CFC granted the VA summary judgment, and the Federal Circuit affirmed, concluding the Rule of Two was mandatory only until the VA satisfied its annual contracting goals under §8127(a).

Unambiguous Requirement

In a unanimous opinion by Justice Thomas, the Court held §8127(d) is mandatory, “requires the [VA] to apply the Rule of Two to all contracting determinations,” and “does not allow the [VA] to evade the Rule … on the ground that it has already met its contracting goals or … has placed an order through the FSS.” Section 8127(d) is unambiguous. Its use of the word “shall” connotes a requirement. The contrasting use of the word “may” in §8127(b) and (c), which provide exceptions for noncompetitive procedures and sole-source contracts for lower value acquisitions, “confirm[s] Congress used the word ‘shall’ … as a command.” In limiting application of the Rule of Two, the Federal Circuit relied on prefatory language in §8127(d) referring to the purpose of meeting the VA’s contracting goals, but the prefatory clause did not change the plain meaning of the operative clause. Moreover, §8127(b) and (c) contain identical “purpose” clauses, and the Federal Circuit’s interpretation would prohibit application of the exceptions once the VA’s contracting goals were met. There also was no merit to the VA’s arguments for preserving an exception for FSS orders. FSS orders are “contracts” and §8127(d) applies when the VA “award[s] contracts.” In addition, the VA does not limit use of the FSS to simplified acquisitions, and the VA’s interpretation is not entitled to deference when the statute is unambiguous.

Cost of Administering a Government Contract: $907

A May 12, 2016, proposed rule issued by the Department of Defense, General Services Administration, and National Aeronautics and Space Administration estimates that it costs the government $907 to award and administer a contract.

The rule proposes to amend the Federal Acquisition Regulation to revise, for the purpose of evaluating bids for multiple awards, the estimated administrative cost to award and administer a contract.

The rule would make a monetary adjustment to FAR 14.201-8, Price related factors, and the solicitation provision at FAR 52.214-22, Evaluation of Bids for Multiple Awards.

FAR 14.201-8(c) provides that advantages or disadvantages to the government that might result from making more than one award is one of the factors that may be considered in evaluating bids. FAR 52.214-22 currently reflects an estimated administrative cost of $500, but that amount was last adjusted in 1990 (see 55 FR 3878).

According to the rule, an adjustment from $500 to $1,000 is a realistic reflection of the actual cost to the government.

The government’s Consumer Price Index calculator showed $907 as the proper adjustment, but the rule rounds up the figure to $1,000. The agencies will review the cost periodically and update it as deemed appropriate.

Comments on the proposed rule referencing FAR Case 2016-003 are due July 11, 2016. For the text of the rule, see 81 FR 29514

GAO Develops Electronic Protest Docketing System, Proposes Filing Fee

The Government Accountability Office is proposing to amend its bid protest regulations to implement section 1501 of the Consolidated Appropriations Act for Fiscal Year 2014 (PL 113-76) and make administrative changes.

The proposed revisions implement the Act’s requirement to establish and operate an electronic filing and document dissemination system for filing bid protests with GAO.

GAO is developing the Electronic Protest Docketing System, which will be the sole means for filing a bid protest at GAO, except for protests containing classified information.

EPDS will also allow parties to a bid protest and GAO to file and receive documents.

GAO anticipates establishing a bid protest filing fee of $350 to support the establishment and operation of EPDS.

In addition to implementing the EPDS, the proposed amendments to GAO 21.0 through GAO 21.14 make administrative changes to reflect current practice and streamline the bid protest process.

Comments on the proposed rule are due May 16, 2016. For the text of the rule, see 81 FR 221971.