Our monthly edition of the “Government Contracts Regulatory and Legislative Update” offers a summary of and insight into the relevant industry developments that occurred during the previous month.

DoD Issues Proposed Rule Requiring Electronic Submission of the DD Form 254, Contract Security Classification Specification

On July 12, 2019, the DoD issued a proposed rule to amend the FAR to update and clarify the requirements for using the DD Form 254, Contract Security Classification Specification. The Government uses the DD Form 254 to communicate security requirements to contractors when contract performance requires access to classified information. Prime contractors also use the DD Form 254 to communicate security requirements to subcontractors that require access to classified information to perform on a subcontract. Subcontractors may also use the DD Form 254 if access to classified information is required to convey security requirements to additional subcontractors. The proposed rule will streamline the submission process for the existing DD Form 254 and will enable businesses to submit one electronic form, instead of repeated paper submissions. Additionally, under the proposed rule, nondefense agencies that have industrial security services agreements with DoD or DoD components will be required to specify the security classification for a contract involving access to information classified as “Confidential,” “Secret,” or “Top Secret” using the DD Form 254.

SBA Issues Interim Rule Adjusting Monetary-Based Size Standards

On July 18, 2019, SBA issued an interim final rule adjusting its monetary-based industry size standards for inflation that has occurred since the last inflation adjustment, which was published in June 2014. These include receipts-based size standards for 518 industries and 9 subindustries (i.e., “exceptions” in the SBA Table of Size Standards), as well as assets-based size standards for 5 industries. Additionally under the rule, SBA is adjusting two program-specific receipts-based size standards, namely, (1) sales or leases of government property and (2) stockpile purchases. The rule aims to reinstate small business eligibility for federal assistance for businesses that may have lost eligibility under SBA’s monetary-based size standards because of inflation-led revenue growth. The SBA’s Size Standards Methodology white paper explains the SBA’s inflation-adjustment methodology. The rule became effective August 19, 2019.

FAR Council Issues Final Rule Streamlining Communication

On August 7, 2019, the FAR Council issued a final rule to implement a new FAR clause 52.216-32, Task-Order and Delivery-Order Ombudsman, which serves as a single clause for use by all agencies when awarding a multiple-award, indefinite-delivery indefinite-quantity (IDIQ) contract and provides contractors with the requisite contact information for the agency task-order ombudsman. Prior to issuance of this rule, several agencies created agency-level contract clauses to provide this information to contractors. This final rule intends to minimize any impact on contractors resulting from the variety of ways in which the information is communicated by agencies and to implement a standardized method to provide the requisite information to contractors via a single contract clause. The rule became effective September 6, 2019.

DoD Issues Proposed Rule Limiting the Scope of Review by the SBA’s Procurement Center Representatives for Certain DoD Solicitations

On August 9, 2019, DoD issued a proposed rule to amend DFARS part 219 to implement the SBA’s December 2018 proposed rule (83 FR 62516) limiting the scope of review by the SBA’s procurement center representatives, unless DoD requests a review, if the solicitation is awarded by or for DoD and—

  • Is conducted pursuant to section 22 of the Arms Export Control Act (22 U.S.C. 2762);
  • Is a humanitarian operation as defined in 10 U.S.C. 401(e);
  • Is a contingency operation as defined in 10 U.S.C. 101(a)(13);
  • Is to be awarded pursuant to an agreement with the government of a foreign country in which U.S. Armed Forces are deployed; or
  • Both the place of award and the place of performance are outside the United States and its territories.

The rule proposes to add text at DFARS 219.402 to inform contracting officers of these limitations and excludes these procurements from DoD’s small business goals. Comments on the proposed rule are due by October 8, 2019.

DoD Issues Proposed Rule Requiring Appropriate Use of the Should-Cost Review Process

On August 9, 2019, DoD issued a proposed rule to amend DFARS 215.407-4 to provide for the appropriate use of the should-cost review process of a major weapon system in a manner that is transparent and objective, and provides efficiency in the systems-acquisition process in the Department of Defense. This rule would implement section 837 of the National Defense Acquisition Act for Fiscal Year 2918 and would address the six elements of a program should-cost review. Comments on the proposed rule are due by October 8, 2019.

DoD Issues Final Rule Adding Australia as a New World Trade Organization Country

On August 9, 2019, DoD issued a final rule to amend the DFARS to add Australia to the list of World Trade Organization Government Procurement Agreement (WTO GPA) countries. In doing so, the United States has agreed to waive the Buy American Act requirements and other discriminatory provisions for eligible products and suppliers of Australia under the Trade Agreements Act. This rule became effective August 9, 2019.

DoD Issues Final Rule Revising the Requirements for Definitizing Undefinitized Contract Actions

On August 9, 2019, DoD issued a final rule amending restrictions on undefinitized contractual actions (UCA) regarding risk-based profit, time for definitization, and foreign military sales. Section 815 establishes limitations on unilateral definitizations of UCAs over $50 million. The final rule will make the following changes to DFARS:

  • If a UCA is definitized after the end of the 180-day period beginning on the date on which the contractor submits a qualifying proposal, the head of the agency must ensure that profit reflects the cost risk of the contractor as such risk existed on the date on which the contractor submitted the qualifying proposal.
  • The definitization of a UCA may not be extended by more than 90 days beyond the maximum 180-day definitization schedule negotiated in the UCA without a written determination by the Secretary of the military department concerned, the head of the defense agency concerned, the commander of the combatant command concerned, or the Under Secretary of Defense for Acquisition and Sustainment that it is in the best interests of the military department, the defense agency, the combatant command, or the Department of Defense, respectively, to continue the action.
  • Contracting officers of the DoD may not enter into a UCA for a foreign military sale unless the contract action provides for definitization within 180 days and the contracting officer obtains approval from the head of the contracting agency. The head of the agency may waive this requirement if necessary to support a contingency, humanitarian, or peacekeeping operation.
  • Contracting officers may not unilaterally definitize a UCA with a value greater than $50 million until all of the following conditions are met—
  • The earlier of the end of the 180-day period beginning on the date on which the contractor submits a qualifying proposal to definitize the contractual terms, specifications, and price, or the date on which the amount of funds expended under the contractual action is more than 50 percent of the negotiated overall not-to-exceed price for the contractual action;
  • The service acquisition executive for the military department that awarded the contract or the Under Secretary of Defense for Acquisition and Sustainment (if the contract was awarded by a defense agency or other component of the Department of Defense) approves the definitization in writing;
  • The contracting officer provides a copy of the written approval to the contractor; and
  • A period of 30 calendar days has elapsed after the written approval is provided to the contractor.

The rule, which implements Section 811 of the FY 2017 NDAA and Section 815 of the FY 2018 NDAA, became effective August 9, 2019.

DoD Issues Final Rule Prioritizing Certain Commercial Services

On August 9, 2019, DoD issued a final rule providing that a contracting officer may not enter into a contract above the simplified acquisition threshold for facilities-related services, knowledge-based services (except engineering services), medical services, or transportation services that are not commercial services, unless the appropriate official determines in writing that no commercial items are suitable to meet the agency's needs. Different approval levels are provided for contracts in excess of $10 million and for contracts that exceed the simplified acquisition threshold but do not exceed $10 million. These changes partially implement section 876 of the FY 2017 NDAA. The rule became effective August 9, 2019.

The FAR Council Issues Proposed Rule Incorporating SBA’s Policy of Including Overseas Contracts in Agency Small Business Contracting Goals

On August 12, 2019, the FAR Council issued a proposed rule to amend the FAR in support of the Small Business Administration’s changes to the basis for the government-wide small business contracting goals and are consistent with SBA's regulatory changes. The proposed rule clarifies that contracting officers are allowed, but not required, to use the set-aside and sole-source procedures of FAR Part 19 for overseas procurements and gives contracting officers the tools they need to maximize opportunities for small businesses to obtain contracts outside the United States. This change may increase contract awards to small businesses, which will facilitate agencies’ achievement of their small business contracting goals. Comments on the proposed rule are due by October 11, 2019.

The FAR Council Issues Interim Rule Restricting the Use of Certain Telecommunications and Video Surveillance Services

On August 13, 2019, the FAR Council issued an interim rule prohibiting agencies from procuring or obtaining any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as part of any system. “Covered telecommunications equipment or services” is defined in the statute to mean—

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities);
  • For the purpose of public safety, security of Government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
  • Telecommunications or video surveillance services provided by such entities or using such equipment; or
  • Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

Under the interim rule, contracting officers must include the provisions of the clause at FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment, and the clause at FAR 52.204-25, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment, in all solicitations issued on or after August 13, 2019, and resultant contracts and in all solicitations issued before August 13, 2019, provided award of the resulting contract(s) occurs on or after August 13, 2019. Under certain circumstances, an agency may grant a one-time waiver on a case-by-case basis for up to a two-year period. The interim rule also requires submission of a representation with each offer that will require offerors to identify as part of their offer any covered telecommunications equipment or services that will be provided to the government. This interim rule applies to contracts at or below the simplified acquisition threshold and for the acquisition of commercial items. Comments on the interim rule are due by October 15, 2019.

Department of Labor Issues Guidance Clarifying Religious Exemption

On August 15, 2019, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs issued a proposed rule to clarify the scope and application of the religious exemption contained in Executive Order 11246, section 204(c), in response to feedback from religious organizations that they were reluctant to participate as federal contractors due to uncertainty. The proposed rule intends to make clear that the Executive Order 11246 religious exemption covers not just churches but also employers that are organized for a religious purpose, that hold themselves out to the public as carrying out a religious purpose, and engage in the exercise of religion that is consistent with a religious purpose. It is also intended to make clear that religious employers may condition employment on acceptance of or adherence to religious tenets without sanction by the federal government, provided that they do not discriminate based on other protected bases. In addition, consistent with the administration policy to enforce federal law's robust protections for religious freedom, the proposed rule states that it should be construed to provide the broadest protection of religious exercise permitted by the Constitution and other laws. Comments on this rule were due by September 16, 2019.

The FAR Council Issues Proposed Rule to Permit Issuance of Task or Delivery Orders Via Fax or Electronic Commerce

On August 23, 2019, the FAR Council issued a proposed rule to amend FAR clause 52.216-18, Ordering, to (1) remove the language stating that the use of fax or electronic commerce may only be used if authorized in the contract; and (2) identify the point in time when a task delivery order is considered issued when sent by fax or electronically. The objectives of the rule are to update the clause language to reflect current business practices and to maintain speed and efficiency when issuing task and delivery orders under a contract. Comments on the rule are due by October 22, 2019.