FEDERAL CONTRACTS PERSPECTIVE Federal Acquisition Developments, Guidance, and Opinions

Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE Federal Acquisition Developments, Guidance, and Opinions Vol. XIV, No. 12 December 2013 FAC 2005-71 ADDS CLAUSE ACCELERATING PAYMENTS TO SMALL BUSINESS SUBCONTRACTORS Federal Acquisition Circular (FAC) 2005-71 is a small one, consisting of only two rules revising the Federal Acquisition Regulation (FAR): one adding a new clause that requires contractors to provide accelerated payments to their subcontractors, and the other recognizing that Croatia is a new designated country whose goods and services are to be treated as if they are domestic goods or services. CONTENTS Accelerated Payments to Small Business Subcontractors: This final rule implements Office of Management and Budget (OMB) Memorandum M-12-16, Providing Prompt Payment to Small Business Subcontractors, and OMB Memorandum M-13-15, Extension of Policy to Provide Accelerated Payment to Small Business Subcontractors, to incorporate a new clause that requires contractors, upon receipt of accelerated payments from the government, to provide accelerated payments to small business FAC 2005-71 Adds Clause Accelerating Payments.. 1 DFARS Amended to Address Supply Chain Risk... 3 DOE to Address Patents, Data, and Copyrights... 5 EPA Proposes Environmental Guidelines... 6 subcontractors. This clause, FAR 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, is to be included in all solicitations and contracts, including those for the acquisition of commercial items. OMB Memorandum M-12-16 directed departments and agencies to ensure that prime contractors are able to pay their small business subcontractors in a prompt fashion. In particular, agencies should, to the full extent permitted by law, temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payments to small business subcontractors. To assist in this effort, OMB requested that the Federal Acquisition Regulatory Council (FAR Council) develop standard wording for a clause that would be included in contracts with the prime contractor (for more on OMB Memorandum M-12-16, see the September 2012 Federal Contracts Perspective article OMB Orders Prompt Payment to Small Subcontractors ). The FAR Council published the proposed clause that would be included in all solicitations and contracts, including those for the acquisition of commercial items, and require the prime contractor, upon receipt of accelerated payments from the government, to make accelerated payments to small business subcontractors after receipt of a proper invoice and all proper documentation from small business subcontractors. The FAR Council requested comments on the proposed clause (for more on the proposed rule, see the January 2013 Federal Contracts Perspective article Accelerated Subcontractor Payments Proposed ). Subsequently, OMB issued Memorandum M-13-15 to extend the accelerated payment policy from July 11, 2013 (the expiration date of OMB Memorandum M-12-16) to July 11, 2014 (see

the August 2013 Federal Contracts Perspective article OMB Extends Small Subcontractors Payment Policy ). Though comments on the proposed rule were submitted, no changes were made to the final rule in response to those comments other than editorial ones. However, FAR 52.244-6, Subcontracts for Commercial Items, is amended to add a requirement that FAR 52.232-40 be included by the contractor in all subcontracts. In addition to the new clause, this final rule adds FAR 32.009, Providing Accelerated Payments to Small Business Subcontractors, which consists of: (1) FAR 32.009-1, General, which references the policy provided by OMB Memoranda M-12-16 and M-13-15, and that this acceleration does not provide any new rights under the Prompt Payment Act and does not affect the application of the Prompt Payment Act late payment interest provisions ; and (2) FAR 32.009-2, Contract Clause, which is the prescription for FAR 52.232-40. New Designated Country Croatia: This final rule adds Croatia as a new designated country under the World Trade Organization Government Procurement Agreement (WTO GPA). Croatia joined the European Union, which is a party to the WTO GPA, on July 1, 2013. Therefore, this rule adds Croatia to the list of WTO GPA countries wherever it appears in the FAR, whether as a separate definition, as part of the definition of designated country, or as part of the list of countries exempt from the prohibition of acquisition of products produced by forced or indentured child labor: FAR 22.1503, Procedures for acquiring end products on the List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor; FAR 25.003, Definitions; FAR 25.407, Agreement on Trade in Civil Aircraft; FAR 52.222-19, Child Labor Cooperation with Authorities and Remedies; FAR 52.225-5, Trade Agreements; FAR 52.225-7, Waiver of Buy American Act for Civil Aircraft and Related Articles; FAR 52.225-11, Buy American Act Construction Materials under Trade Agreements; and FAR 52.225-23, Required Use of American Iron, Steel, and Manufactured Goods Buy American Act Construction Materials Under Trade Agreements. In addition, conforming changes are made to FAR 52.212-5, Contract Terms and Conditions Required to Implement Statute or Executive Orders Commercial Items, and FAR 52.213-4, Terms and Conditions Simplified Acquisitions (Other Than Commercial Items). (EDITOR S NOTE: DOD had already revised the DOD FAR Supplement (DFARS) to add Croatia as a designated country. See the November 2013 Federal Contracts Perspective article DOD Keeps Issuing Changes Despite Shutdown. ) Visit http://www.fedgovcontracts.com Vivina McVay, Editor-in Chief 2013 by Panoptic Enterprises. All rights reserved. Reproduction, photocopying, storage, or transmission by any means is prohibited by law without the express written permission of Panoptic Enterprises. Under no circumstances should the information contained in Federal Contracts Perspective be construed as legal or accounting advice. If a reader feels expert assistance is required, the services of a professional counselor should be retained. The Federal Contracts Perspective is published monthly by Panoptic Enterprises, P.O. Box 11220, Burke, VA 22009-1220. December 2013 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE 2

DFARS AMENDED TO ADDRESS SUPPLY CHAIN RISK The Department of Defense (DOD) took a break in November, issuing only three rules: one addresses supply chain risk related to national security systems; another addresses safeguarding unclassified controlled technical information; and the final rule deletes coverage in the DOD FAR Supplement (DFARS) addressing contractors performing private security functions because it duplicates coverage in the FAR. Requirements Relating to Supply Chain Risk: This interim rule adds DFARS subpart 239.73, Requirements for Information Relating to Supply Chain Risk, and a related solicitation provision and contract clause, to implement Section 806 of the National Defense Authorization Act for Fiscal Year 2011 (Public Law 111-383), Requirements for Information Relating to Supply Chain Risk, which authorizes the DOD to establish a pilot program to consider the impact of supply chain risk in specified types of procurements related to national security systems. This authority expires September 30, 2018. Section 806 of Public Law 111-383 defines supply chain risk as the risk that an adversary may sabotage, maliciously introduce unwanted function, or otherwise subvert the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of a covered system so as to surveil, deny, disrupt, or otherwise degrade the function, use, or operation of such system. Title 44 of the U.S. Code, Section 3542 (44 USC 3542), Definitions, defines national security system as any information system (including any telecommunications system) used or operated by an agency or by a contractor of an agency, or other organization on behalf of an agency, the function, operation, or use of which: (I) involves intelligence activities; (II) involves cryptologic activities related to national security; (III) involves command and control of military forces; (IV) involves equipment that is an integral part of a weapon or weapons system; or (V) is critical to the direct fulfillment of military or intelligence missions Subparagraph (V) does not include a system that is to be used for routine administrative and business applications (including payroll, finance, logistics, and personnel management applications. The primary purpose of DFARS subpart 239.73 is to authorize the secretaries of Defense, Army, Navy, and Air Force to exclude certain sources when conducting covered procurements (that is, procurements of national security systems or an item of information technology that is to be included in a national security system). These authorized individuals may (a) exclude a source that fails to meet qualification standards established for the purpose of reducing supply chain risk in the acquisition of covered systems; (b) exclude a source that fails to achieve an acceptable rating with regard to an evaluation factor providing for the consideration of supply chain risk in the evaluation of proposals for the award of a contract or the issuance of a task or delivery order; [and] (c) withhold consent for a contractor to subcontract with a particular source or direct a contractor for a covered system to exclude a particular source from consideration for a subcontract under the contract (DFARS 239.7305, Exclusion and Limitation on Disclosure). In addition, they are authorized to limit the disclosure of information relating to the basis for carrying out any of [these] actions and if such disclosures are so limited: (1) no action undertaken by the individual authorized under such authority shall be subject to review in a bid protest before the Government Accountability Office or in any federal court; and (2) the authorized individual shall: (i) notify appropriate parties of a covered procurement action and the basis for such action only to the extent necessary to effectuate the covered procurement action; 3 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE December 2013

(ii) notify other Department of Defense components or other federal agencies responsible for procurements that may be subject to the same or similar supply chain risk, in a manner and to the extent consistent with the requirements of national security; and (iii) ensure the confidentiality of any such notifications. To effectuate these authorities, DFARS 252.239-7017, Notice of Supply Chain Risk, must be included in all solicitations, including solicitations for the acquisition of commercial items, that involve the development or delivery of any information technology whether acquired as a service or as a supply; and DFARS 252.239-7018, Supply Chain Risk, must be included in all solicitations and contracts, including solicitations and contracts for the acquisition of commercial items, that involve the development or delivery of any information technology whether acquired as a service or as a supply. Comments on this interim rule must be submitted no later than January 17, 2014, identified as DFARS Case 2012-D050, by any of the following methods: (1) the Federal erulemaking Portal: http://www.regulations.gov; (2) email: dfars@osd.mil; (3) fax: 571-372-6094; or (4) mail: Defense Acquisition Regulations System, Attn: Dustin Pitsch, OUSD (AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon, Washington, DC 20301-3060. Safeguarding Unclassified Controlled Technical Information: This finalizes, with significant changes, the proposed rule that would add DFARS subpart 204.74, Safeguarding Unclassified DOD Information, and associated contract clauses, to implement adequate security measures to safeguard unclassified DOD information within contractor information systems from unauthorized access and disclosure. After 49 respondents submitted comments on the proposed rule, it was decided that the scope of the rule would be modified to reduce the categories of information covered. This final rule addresses safeguarding requirements that cover unclassified controlled technical information only and reporting the compromise of unclassified controlled technical information. First of all, the final rule has changed the subpart identification to DFARS subpart 204.73, so it conforms to the current DFARS baseline numbering sequence. In addition, the name of the subpart is changed to Safeguarding Unclassified Controlled Technical Information to reflect its more limited scope. The definitions in the proposed rule of authentication, clearing information, critical program information, cyber, data, DOD information, ` government information, incident, information, information system, intrusion, nonpublic information, safeguarding, threat, and voice are removed. In their place are new definitions for controlled technical information, cyber incident, and technical information (DFARS 204.7301, Definitions). DFARS 204.7302, Policy, is modified to reflect the reduced scope of the rule limiting the application of safeguarding controls to unclassified controlled technical information, which is marked in accordance with DOD Instruction 5230.24, Distribution Statements on Technical Documents. DFARS 204.7403, Procedures, is not included in the final rule. Where the proposed rule prescribed a basic safeguarding clause and an enhanced safeguarding clause, DFARS 204.7303, Contract Clause, prescribes only one clause, DFARS 252.204-7012, Safeguarding of Unclassified Controlled Technical Information, which is a modification of the proposed enhanced safeguarding clause. The previously proposed basic December 2013 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE 4

safeguarding clause is removed and the proposed controls will be implemented through another rule at a later date. Also, to DFARS 252.204-7012 is added a list specifying the 13 pieces of information required for reporting (paragraph (d)(1)), and the time period a contractor must retain incident information to allow for DOD to request information necessary to conduct a damage assessment or decline interest is set at 90 days (paragraph (d)(4)(iii)). Finally, additional information is added regarding DOD s damage assessment activities (paragraph (d)(5)). For more on the proposed rule, see the July 2011 Federal Contracts Perspective article DFARS Rules All Over the Place! Removal of Coverage on Contractors Performing Private Security Functions: This final rule removes DFARS 225.370, Contractors Performing Private Security Functions, and DFARS 252.225-7039, Contractors Performing Private Security Functions, because coverage on contractors performing private security functions is now in the FAR. The coverage was added by FAC 2005-67, so there is no need to retain the duplicative DFARS coverage applicable solely to DOD. For more on FAC 2005-67, see the July 2013 Federal Contracts Perspective article FAC 2005-67 Removes Limits on WOSB Set-Asides, Addresses Concerns with Acquisition of Social Media. ENERGY TO ADDRESS PATENTS, DATA, AND COPYRIGHTS The Department of Energy (DOE) is proposing to amend the DOE Acquisition Regulation (DEAR) part 927, Patents, Data, and Copyrights, and DEAR subpart 970.27, Patents, Data, and Copyrights [for DOE Management and Operations Contracts], to make changes so they conform to changes made to the FAR by FAC 2005-21 (see the December 2007 Federal Contracts Perspective article FAC 2005-21 Rewrites FAR Part 27 in Plain English ); to make policy revisions for computer software developed under DOE contracts; and to amend guidance regarding technology transfers to foreign entities, trademarks associated with laboratory activities, and background technology rights under DOE contracts. In addition, this proposed rule would update, clarify, and streamline text in DOE intellectual property and technology transfer clauses in order to benefit from several years of experience under the existing clauses and, where necessary, make these DOE clauses consistent with changes made to the FAR by FAC 2005-21. The following are the significant changes that are being proposed: DEAR 927.302, Policy [for patent rights under government contracts], would be redesignated as DEAR 927.302-70, Additional Policy, and revised to conform to the standards for inclusion of background rights clauses in Title 10 of the Code of Federal Regulations, Section 600.325, Copyright Assignment to Government (10 CFR 600.325). Circumstances may arise where DOE would like to take ownership of copyright in data first produced under a DOE contract by a DOE contractor. Although FAR 52.227-17, Rights-in Data Special Works, provides for this, it does so in limited special circumstances. Therefore, paragraph (c)(3) of DEAR 970.5227-1, Rights in Data Facilities, and paragraph 5 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE December 2013

(c)(3) of DEAR 970.5227-2, Rights in Technical Data Technology Transfer, would be amended to provide for DOE to take ownership of such data in other circumstances, as may be needed to support specific DOE programs or to further DOE mission requirements. DEAR 970.5227-2 provides mechanisms by which computer software first produced by a DOE contractor may be made available to the public. DOE program officers and contractors have begun utilizing open source software licensing, which is software bearing an assertion of copyright (usually a copyright notice), and occasionally, a trademark in the name of the software. DOE has developed internal interim guidance by which open source software licensing may be conducted by DOE contractors. To recognize the utility of open source software licensing as another tool that may be chosen by DOE contractors to disseminate DOE-sponsored software, and to specify the conditions under which DOE contractors may choose to copyright and license software as open source, paragraph (f) would be added to DEAR 970.5227-2. Paragraph (a)(3) would be added to DEAR 970.5227-3, Technology Transfer Mission, to affirm that the DOE laboratory names and logos are owned by DOE, and any contractor desiring to assert trademark or service mark protection for any word, phrase, symbol, design, or combination that includes or is associated with the laboratory name must first notify the DOE patent counsel. DEAR 970.5227-3(f)(1)(ii)(C) would be added to make clear to DOE contractors and the public that consultation of publicly-available United States Trade Representative (USTR) information, such as the information on the USTR s website (http://www.ustr.gov) rather than direct consultation with the USTR may satisfactorily address requirements under the clause regarding transactions with organizations owned or controlled by foreign entities. DEAR 970.5227-12, Patent Rights Management and Operating Contracts, For-Profit Contractor, Advance Class Waiver, would be revised to clarify the procedures for allocation of rights to weapons related subject inventions. Comments on this proposed rule must be submitted no later than December 9, 2013, identified as DEAR: Patents, Data, and Copyrights and RIN 1991-AB82, by any of the following methods: (1) the Federal erulemaking Portal: http://www.regulations.gov; (2) email: DEARrulemaking@hq.doe.gov; or (3) mail: U.S. Department of Energy, Office of Acquisition and Project Management, MA-611, 1000 Independence Avenue SW, Washington, DC 20585. EPA SEEKS COMMENTS ON ENVIRONMENTAL GUIDELINES The Environmental Protection Agency (EPA) is seeking comments on draft guidelines intended to provide a transparent, fair, and consistent approach to using nongovernmental product environmental performance standards and ecolabels in federal purchasing, consistent with federal standards policy and sustainable acquisition mandates. Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance, and FAR 23.103, Sustainable Acquisitions, require 95% of the government s December 2013 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE 6

applicable contract actions to be sustainable. While federal purchasing policy is clear for the several standards and ecolabels that are listed in statute, regulation, or executive order, the lack of guidance on using other product environmental performance standards and ecolabels often results in an inconsistent approach by federal purchasers and confusion and uncertainty for vendors and manufacturers. The draft guidelines have been developed in response to requests from suppliers, manufacturers, environmental organizations, federal purchasers, and others over the last several years, and are expected to be used by agencies to select nongovernmental product environmental performance standards and ecolabels for voluntary use in federal procurement, thus helping them achieve the 95% sustainable acquisition requirement. The proposed draft guidelines and supplementary information can be found in at http://www.epa.gov/epp/draftguidelines. The draft guidelines are organized into the following four sections: Section I, Guidelines for the Process for Developing Standards, addresses the procedures used to develop, maintain, and update a product environmental performance standard. Section II, Guidelines for the Environmental Effectiveness of Standards, addresses the criteria in the standard or ecolabel that support the claim of environmental preferability. Section III, Guidelines for Conformity Assessment, addresses the procedures and practices by which products are assessed for conformity to the criteria specified by standards and ecolabeling programs. Section IV, Guidelines for Management of Ecolabeling Programs, addresses the organizational and management practices of an ecolabeling program. EPA anticipates that a number of organizations may be able to respond to the need for assessment of standards and ecolabels for conformity with the guidelines. Taking this into account, EPA is considering a limited pilot project, assuming sufficient appropriations are available, to test an assessment approach, especially with respect to guidelines addressing the environmental effectiveness of a standard or ecolabel's criteria. During this pilot, EPA expects that an external entity (or entities) would convene and work with a multi-stakeholder panel (or panels) to develop product category-specific programs to assess conformity of standards and ecolabels with the guidelines. The entity (or entities) would then conduct the assessments for selected product categories in a manner consistent with the International Organization for Standardization s (ISO) guides on conformity assessment, and develop a list of standards and ecolabels that conform to the guidelines. The results from the pilot project would be made publicly available and EPA would evaluate the results to inform any future action such as making available a list of conforming standards and ecolabels for voluntary use by federal agencies in procurement activities. EPA is requesting comments on the draft guidelines and the concept of assessing nongovernmental standards and ecolabels for voluntary use in federal procurement. Recognizing that implementation of these draft guidelines will call for additional stakeholder engagement and assessment processes, EPA also welcomes comments on the overall approach, including the potential pilot project. In particular: 7 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE December 2013

1. How might the guidelines benefit the broader marketplace? 2. Are there any draft guidelines that should be removed or modified? Are there gaps in the draft guidelines that could be addressed by a new guideline(s)? 3. Are the designations of baseline and leadership in the draft guidelines understandable? Can the designations be easily implemented? Do they appropriately reflect varying approaches in the marketplace today? 4. How should the leadership guidelines be applied to standards and ecolabels in different product categories (for example, different weightings in an overall conformity assessment scheme)? 5. What processes, approaches, measures, and mechanisms should be used to determine conformance with the guidelines, if they are finalized and implemented? 6. Under what circumstances and under what authorities, if any, should the federal government require a particular type of conformity assessment to provide adequate confidence that the products have met a particular environmental performance standard or ecolabel? 7. Are there alternatives to the pilot project that EPA should consider? 8. If EPA were to move forward with the pilot project to test the proposed standards and ecolabels assessment approach, which product categories should be prioritized? 9. What challenges need to be addressed/resolved in implementing the proposed guidelines in order to be a transparent, fair, and consistent process? Comments on the draft guidelines must be submitted no later than February 25, 2014, identified as EPA-HQ-OPPT-2013-0579, by any of the following methods: (1) the Federal erulemaking Portal: http://www.regulations.gov; (2) mail: Document Control Office (7407M), Office of Pollution Prevention and Toxics (OPPT), Environmental Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460-0001; or (3) delivery: OPPT Document Control Office (DCO), William Jefferson Clinton (WJC) East Bldg., Room 6428, 1201 Constitution Ave. NW, Washington, DC. ATTN: Docket ID Number EPA-HQ-OPPT-2013-0579 (the DCO is open from 8:00 am to 4:00 pm, Monday through Friday, excluding legal holidays). For more on Executive Order 13514, see the November 2009 Federal Contracts Perspective article President Sets Sustainability Goals for Government. For more on the FAR implementation of Executive Order 13514, see the June 2011 Federal Contracts Perspective article FAC 2005-52 Requires Agencies to Leverage Acquisitions to Foster Sustainable Technologies. Visit http://www.fedgovcontracts.com December 2013 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE 8

426 pages, 2009, ISBN: 978-1-912481-26-5, $49.95 from Panoptic Enterprises (http://www.fedgovcontracts.com) and from Amazon.com To see: Table of Contents, go to http://www.fedgovcontracts.com/contents.pdf Index, go to http://www.fedgovcontracts.com/index.pdf Sample Chapters: Chapter 11, Set-Asides and Preference Programs, go to http://www.fedgovcontracts.com/chap11.pdf Chapter 13, Federal Supply Schedules, go to http://www.fedgovcontracts.com/chap13.pdf 9 Panoptic Enterprises FEDERAL CONTRACTS PERSPECTIVE December 2013