General Federal Acquisition Regulation (FAR) Clauses and Negotiation Tactics-NCURA Region II, May 2011
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1 General Federal Acquisition Regulation (FAR) Clauses and Negotiation Tactics-NCURA Region II, May 2011 Stacey Bucha Senior Negotiator Office of Sponsored Programs The Pennsylvania State University Cheryl George Export Compliance Officer Office of Sponsored Programs The Pennsylvania State University
2 Introduction What is the FAR? The origins of the Federal Acquisition Regulations System can be traced back to 1792 when Congress granted the Departments of War and Treasury the authority to contract. The purpose of the FAR is to establish uniform rules for federal contracting.
3 Introduction What are the FAR supplements? The Federal Acquisition Regulations System consists of the Federal Acquisition Regulation (FAR) which is the primary document, and agency acquisition regulations that implement or supplement the FAR. These supplements include the Defense Federal Acquisition Regulation Supplement (DFARS), the Department of Energy Acquisition Regulation Supplement (DEARS), etc.
4 Introduction
5 Introduction Where do you find the FAR? Where in the contract can you find FAR clauses? FAR clauses can be found anywhere in a federal contract or subcontract, most frequently in Section H (Special Contract Requirements) and Section I (Contract Clauses).
6 Introduction What is a prescription? A prescription is a clause that provides the Contracting Officer (CO) instructions as to when a particular FAR clause is or is not applicable to a contract. (A reference to the relevant prescription can be found at the beginning of each FAR clause.)
7 Introduction What is an alternate? An alternate is a variation of a FAR clause. Check the prescription for instructions as to when a particular alternate applies. (Not all clauses have alternates.)
8 And Now..the clauses! What does the clause say? What does the prescription say? Can we accept the clause? Should we accept the clause? If we shouldn t accept the clause, how can we convince the sponsor to remove it? If we accept the clause, is there any action we need to take to comply with it?
9 Security Requirements (8/96) Excerpt from the clause:.the Contractor shall comply with -- (1) The Security Agreement (DD Form 441), including the National Industrial Security Program Operating Manual (DoD M).
10 Security Requirements (8/96) Prescription: (a) The contracting officer shall insert the clause in solicitations and contracts when the contract may require access to classified information. (b) If a cost contract (see ) for research and development with an educational institution is contemplated, the contracting officer shall use the clause with its Alternate I.
11 Security Requirements (8/96) Excerpt from Alternate I:.If, despite reasonable efforts, the Contractor determines that the continuation of work under this contract is not practicable because of the change in security classification or requirements, the Contractor shall notify the Contracting Officer in writing.
12 Security Requirements (8/96) Conclusion: Educational institutions should not accept this clause unless the CO agrees to include Alternate I.
13 Contractor Code of Business Ethics and Conduct (04/10) Prescription: Only applicable to federal contracts and subcontracts > $5 million Clause: Among other things, requires Contractor to have a written code of business ethics and conduct and make a copy of such code available to each employee working on the contract.
14 Certification Regarding Responsibility Matters (04/10) Prescription: Applicable to contracts that exceed the simplified acquisition threshold. What s that? This term (and lots of other terms) are defined at FAR Currently, the simplified acquisition threshold is $150,000.
15 Certification Regarding Responsibility Matters (04/10) Summary: This clause requires the contractor to certify that: They are not debarred or suspended. They have not been convicted of fraud. They are not delinquent in federal taxes. They have not had federal contracts terminated for default during the preceding three year period.
16 Contract Terms and Conditions- Commercial Items (10/08) We do NOT supply commercial items, thus this clause should NOT be accepted. The prescription to this clause (12.301(b)(3)) doesn t make it clear that it doesn t apply. You need to read the section prior to the prescription to understand that this clause is only to be used for the acquisition of commercial items.
17 Contract Terms and Conditions-Commercial Items (06/10) Bad things included in this clause: Clause includes warranty and inspection. Government won t pay if they aren t satisfied with the work. Government may require re-performance at no additional cost. Clause includes patent indemnity, which universities do not typically accept. Clause includes termination for cause. Government receives title to all furnished items.
18 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (01/11) Prescription: This clause may be used in simplified acquisitions exceeding the micro-purchase threshold that are for other than commercial items. The micro-purchase threshold is defined as $3,000 (FAR 2.101). Thus, these terms are to be used for orders of non-commercial items between $3,000 and $150,000.
19 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (01/11) This clause may apply to a lot of your small federal contracts, but there are three bad sections in it: Section (d) Inspection/Acceptance (Government may request re-performance at no increase in price.) Section (g) Termination for Cause (University won t be reimbursed for costs.) Section (h) Warranty
20 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (01/11) Fortunately, the prescription for this clause also states that the clause may be modified to fit the individual acquisition to add other needed clauses, or those clauses may be added separately. You will need to point this out to the contracting officer if he or she objects to your requested changes.
21 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (01/11) In order to understand the arguments for removing sections (d), (g), and (h) from , it is necessary to look at several other sections of the FAR: Inspection clauses ( to ) Termination ( to ) Warranty ( )
22 Various Inspection Clauses Inspection of Services Fixed Price (8/96) Inspection of Services Cost Reimbursement (4/84) Inspection of Research and Development Fixed Price (8/96) Inspection of Research and Development Cost Reimbursement (5/01) Which of the above should universities accept?
23 Various Inspection Clauses Inspection of Services Fixed Price (8/96) Inspection of Services Cost Reimbursement (4/84) Inspection of Research and Development Fixed Price (8/96) Inspection of Research and Development Cost Reimbursement (5/01) Which of the above should universities accept? Answer: None of the above
24 Various Inspection Clauses Inspection of Services Fixed Price (8/96) Inspection of Services Cost Reimbursement (4/84) Inspection of Research and Development Fixed Price (8/96) Inspection of Research and Development Cost Reimbursement (5/01) All of the above clauses include re-performance requirements, which are a considerable financial risk.
25 Inspection of Research and Development (Short Form) (4/84) This is always the preferred inspection clause for universities. The prescription isn t very helpful. It just says to use this clause rather than another inspection clause when this clause would be more appropriate. This clause grants the Government the right to inspect the work, but not the right to require re-performance.
26 Inspection of Research and Development (Short Form) (4/84) Since the prescription doesn t make it clear why the contracting officer has to give universities this clause, your only alternative is to argue for it. Specifically, universities work on a non-profit basis, and therefore cannot afford to do work for the government unless there is a commitment that such work will be reimbursed. We do not have a profit margin to dip into when our customers are unsatisfied.
27 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (3/09) This clause may apply to a lot of your small federal contracts, but there are three bad sections in it: Delete Section (d) Inspection/Acceptance. Replace with Section (g) Termination for Cause. (University won t be reimbursed for costs.) Section (h) - Warranty
28 Various Termination Clauses Termination for Convenience of the Government (Fixed-Price) (Short Form) (4/84) Termination for Convenience of the Government (Fixed-Price) (5/04) Termination for Convenience of the Government (Services) (Short Form) (4/84) Termination for Convenience of the Government (Educational and Other Nonprofit Institutions) (9/96) Which of the above should universities accept?
29 Various Termination Clauses Termination for Convenience of the Government (Fixed-Price) (Short Form) (4/84) Termination for Convenience of the Government (Fixed-Price) (5/04) Termination for Convenience of the Government (Services) (Short Form) (4/84) Termination for Convenience of the Government (Educational and Other Nonprofit Institutions) (9/96) Which of the above should universities accept? Answer: All of the above are fine.
30 Various Termination Clauses Termination for Convenience of the Government (Fixed-Price) (Short Form) (4/84) Termination for Convenience of the Government (Fixed-Price) (5/04) Termination for Convenience of the Government (Services) (Short Form) (4/84) Termination for Convenience of the Government (Educational and Other Nonprofit Institutions) (9/96) Generally, we will be reimbursed for costs incurred and non-cancellable obligations under the above.
31 Bad Termination Clauses Termination (Cost-Reimbursement) (5/04) Any of the Default clauses ( to ) includes an option for termination for convenience or termination for default. Do you remember the Certification Regarding Responsibility Matters ( )? If we are terminated for default, we ll be in a bad position the next time we have to complete this Certification. (See Slide 15.)
32 Bad Termination Clauses The prescription for Termination (Cost- Reimbursement) (5/04) instructs the contracting officer to use except for contracts for research and development with an educational or nonprofit institution on a no-fee basis. Based on this prescription, you can request removal of and replacement with
33 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (01/11) This clause may apply to a lot of your small federal contracts, but there are three bad sections in it: Delete Section (d) Inspection/Acceptance. Replace with Section (g) Termination for Cause. Replace with (or with nothing). Section (h) - Warranty
34 Warranty of Services (5/01) Contractor warrants that all services performed... will be free from defects in workmanship and conform to the requirements of this contract. Government reserves the right under this clause to require re-performance at no additional cost to the Government. Our reasons for objecting to this are exactly the same as our reasons for objecting to the Inspection clauses.
35 Warranty of Services (5/01) Unfortunately, the prescription for this clause doesn t provide us with anything to help us negotiate it out. It simply states that the contracting officer may insert the clause if it has been approved under agency procedures.
36 Warranty of Services (5/01) Arguments for removing warranty clauses: University research is performed on a reasonable best effort basis. We cannot predict the outcome of research at the outset of a project, so it is unfair to expect us to warrant our work. Universities operate on a non-profit basis, which is why we can t afford to enter into contracts that require unfunded re-performance. The Inspection R&D Short Form ( ) was created for organizations like universities, and it does not require unfunded re-performance.
37 Terms and Conditions Simplified Acquisitions (Other Than Commercial Items) (3/09) This clause may apply to a lot of your small federal contracts, but there are three bad sections in it: Delete Section (d) Inspection/Acceptance. Replace with Section (g) Termination for Cause. Replace with (or with nothing). Section (h) Warranty. Replace with (or with nothing).
38 Audits and Records - Negotiation (6/99) This clause specifies the government s rights to audit costreimbursement contracts, cost and pricing data, etc. According to the prescription, the Contracting Officer has to include Alternate II in cost-reimbursement contracts. Alternate II incorporates OMB Circular A-133.
39 Allowable Cost and Payment (12/02) This clause specifies payment terms for cost-reimbursement contracts. According to the prescription, the Contracting Officer must delete the words Subpart 31.2 from paragraph (a) and replace them with Subpart 31.3 when issuing to an educational institution. Subpart 31.3 incorporates OMB Circular A-21.
40 Incentive Fee (3/97) This clause specifies terms for payment of fee to reward a contractor for achieving targets. According to the prescription, this clause should only be used for cost-plus-fixed-fee contracts. Universities generally do not do contract work of this nature, so this clause should be removed.
41 Small Business Subcontracting Plan (01/11) This clause requires contractors to create a plan establishing goals for use of small business, veteran-owned small business, HUBZone small business concerns, small disadvantaged business, and women-owned business concerns. Generally, this plan will be completed by your purchasing or procurement department. According to the prescription, this clause only applies to contracts greater than $650,000.
42 Combating Trafficking in Persons (2/09) Contractor shall notify employees of Government s zero tolerance regarding trafficking in persons: Contractors (and their employees) may not engage in severe forms of trafficking in persons during the POP. Contractors may not procure commercial sex acts or use forced labor in performance of contract. Prepare a sign-off for all project personnel to inform them of the above.
43 Combating Trafficking in Historical interlude: Persons (2/09) Many people objected to the wording of this clause when it came out three years ago. Instead of saying that contractors couldn t engage in these activities, it said that they couldn t support or promote these activities, which was seen by some as a restriction on academic freedom. The original clause also included a requirement for contractors to monitor the conduct of their employees with regard to procurement of commercial sex acts, etc.
44 Drug-Free Workplace (5/01) Requires contractors to inform employees that no possession or use of controlled substances will be permitted in the workplace. This clause is generally required of all contracts issued within the U.S., and universities generally have no concerns about accepting this clause.
45 Authorization and Consent (12/07) Always request Alternate I when you receive this clause. Alternate I is required for all contracts for which the primary purpose is R&D work. Alternate I states that the Government authorizes and consents to all use... of any invention... covered by a US patent in the performance of this contract. This is important, because it protects your institution from being sued for patent infringement.
46 Patent Indemnity (4/84) This clause requires you to indemnify the Government in the event your institution infringes a US patent. This means you can be sued for patent infringement. Obviously, it doesn t make sense to accept if you ve received with its Alternate I. The prescription for this clause used to make this point explicitly. Unfortunately, it no longer does (since December 2007).
47 Patent Indemnity (4/84) Arguments for removing Patent Indemnity: The prescription for this clause says that it is for contracts that may result in the delivery of commercial items. Universities do not deliver commercial items. You can point out to the CO that is inconsistent with , Alt I, which they are required to give you.
48 Patent Indemnity (4/84) Finally, you can reiterate the reason why universities are always opposed to patent indemnity: In the course of performing experimental work, we may inadvertently infringe on someone else s patent. No university can afford to perform patent searches on every area of experimental research it is engaged in. Since the Government is asking us to perform this R&D work, they ought to protect us from this potential liability.
49 Patent Rights Ownership by the Contractor (12/07) This clause allows contractors to retain ownership of their inventions. Contractors must disclose inventions to the CO within two months of internal disclosure. (Failure to do so may result in forfeiture of ownership rights.) Government retains a non-exclusive license to any subject invention. Universities should always request inclusion of this clause in federal contracts and subcontracts.
50 Patent Rights Ownership by the Contractor (12/07) The same rights must be flowed down to all subrecipients. If your institution is the subrecipient, and the prime contractor tries to pressure you to cede ownership of inventions to them, draw their attention to this phrase in : The Contractor shall not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor s subject inventions. (Section (k)(3))
51 Patent Rights Ownership by the Government (12/07) It would be very rare for you to ever have to accept this clause. Per prescription, this clause can only be imposed if: The contractor is outside the US; The contract involves foreign intelligence activities; The contract includes the operation of a DOE GOCO dedicated to nuclear propulsion or weapons programs; or The agency head identifies other exceptional circumstances.
52 Interest (10/10) If the Contractor owes the Government money (due to a disallowance or a price reduction due to defective pricing ) and fails to pay within 30 days, amounts due may be subject to interest. Universities should never have to accept this clause since they perform all work on a non-profit basis. (See FAR (a)(5).)
53 Limitation of Cost (4/84) This clause is used in fully funded cost-reimbursement contracts. You agree to use best efforts to perform the work specified at the estimated cost. You will need to alert the CO when, within the next 60 days, your costs will exceed 75% of the estimated cost of the contract; or if costs will be substantially less or greater than the estimated cost.
54 Limitation of Funds (4/84) This clause is used in incrementally funded cost reimbursement contracts. You agree to use best efforts to perform the work specified within the estimated cost. You are responsible to alert the CO when within the next 60 days your costs will exceed 75% of obligated funds; or 60 days prior to end of funding period, how much or by when additional funds will be needed to continue contract activities.
55 Stop-Work Order (8/89) This clause is used in contracts for supplies, services, or R&D. Alt I should be included in cost-reimbursable contracts to incorporate the correct termination language. Make sure to flowdown this clause. This clause provides the government the opportunity to stop work on a contract for up to 90 days, pending a decision whether to proceed or terminate the contract. If you receive one of these orders, notify ALL concerned parties, including subcontractors
56 Subcontracts (10/10) This clause establishes prior approval requirements for all subcontracting activities. If you have a federally approved purchasing system, consent is not required to subcontract, unless specifically identified by the CO in the subcontracts clause of the contract. Determine thresholds established by clause requirements in contract, and then provide appropriate notification or request approval, as required.
57 Government Property (08/10) This clause establishes title to property, and minimum contractor requirements for property management and disposition. Request Alt II for educational institutions. Title to property purchased with funds less than $5K vest with contractor, provided that you obtain the contracting officers approval before each acquisition. Title to property $5k or over shall vest as stated in contract. Contractor shall provide a list of all property to which title is vested to contractor, within 10 days of the end of the calendar quarter that it was received.
58 Rights in Data General (12/07) This clause grants the Contractor the right to use or publish any data first produced in the performance of the contract. Universities should request the inclusion of Alternate IV. (Per the prescription, Alternate IV is to be used for basic and applied research performed solely by universities.) Alternate IV allows contractors to claim copyright in any data first produced in the performance of the contract.
59 Rights in Data General (12/07) Even if the CO refuses to give you Alt IV, you still retain the right to claim copyright in scientific and technical articles based on data first produced in the performance of the contract. However, if you don t have Alt IV, you won t be able to claim copyright in any other data generated during the project (e.g., computer software) without the prior written approval of the CO.
60 Rights in Data Special Works (12/07) This clause states that you may NOT use or publish data generated in the course of the project without the prior written approval of the CO. This clause also states that you may NOT assert copyright in any data without the prior approval of the CO. This is obviously a very bad clause, and there is hardly any reason why a university should ever accept it.
61 Rights in Data Special Works (12/07) The prescription of this clause states that it is to be included in contracts primarily for the production or compilation of data... for the Government s internal use. Examples of such uses are offered at (a): Preparing a history of a government agency Completing a survey of a government establishment Developing guidebooks for government employees
62 Rights in Data Special Works (12/07) Unless you really are developing a Special Work for the Government s internal use, you should never accept this clause. Some CO s try to impose this clause inappropriately, because it gives them control over everything you do or say related to the project. Important note: This clause constitutes a publication restriction, so it invalidates the fundamental research exemption.
63 Additional Resources Additional information: Matrix Book: U. California: U. Cincinnati: Penn State is currently working to develop a comprehensive listing of all FAR clauses explaining when they should and shouldn t be accepted.
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