WMACCA: Update On Recent Procurement Legislation Presented by: Rand Allen

1. WMACCA: Update On RecentProcurement Legislation Presented by: Rand Allen 202.719.7329 | rallen@wileyrein.com January 16, 2008

2. Overview • Recent Legislation • “Acquisition Improvement and Accountability Act of 2007” (2008 National Defense Authorization Act, Title VIII) • “Openness Promotes Effectiveness in our National Government Act of 2007” (aka “OPEN Government Act of 2007”) • Other Proposed Reforms • Major Themes • Competition/Protests • Commercial Items • Transparency/Openness • Oversight/Accountability • Iraqi Contracts • Specialty Metals (“Berry Amendment”)

3. Status Of Recent Legislation

4. 2008 NDAA, ‘‘Acquisition Improvement & Accountability Act of 2007” • Title VIII of 2008 National Defense Authorization Act (NDAA) known as the “Acquisition Improvement and Accountability Act of 2007” • Incorporates a number of procurement measures found in earlier legislative proposals (e.g., Waxman, Collins bills) • Oversight and Accountability • Task Order Competition, Protests • Commercial Item/Services Definitions • Although passed by Congress, bill not signed into law • Passed by House on 5/17/2007, by Senate (with amendments) on 10/1/07 • Differences resolved in conference, passed by both houses and presented to President for signature on December 19, 2007 • President has refused to sign, based on provisions dealing with seizure of Iraqi assets by private claimants, resulting in “pocket veto”

5. Other Recent Legislation • “Openness Promotes Effectiveness in our National Government Act of 2007,” also known as the “OPEN Government Act of 2007” • Makes a number of changes to the Freedom Of Information Act, including changes regarding records maintained by private contractors • 2008 Defense Appropriations Act (P.L. 110-116) • Among other things, Section 8117 limits use of funds to pay contractor award fees contrary to the provisions of Section 814 of the 2007 NDAA • Requires “linking of award and incentive fees to acquisition outcomes” • Prohibits payment of award fees for contractor performance that is “below satisfactory performance” or “does not meet the basic requirements of the contract”

6. Other Legislative Proposals • Two of the more prominent procurement reform bills introduced in the current Congress include • "Accountability in Government Contracting Act" (S. 680) (Collins, Lieberman) • Includes various measures addressed by 2008 NDAA, including task order competition/protests, disclosure of J&As, definitizing letter contracts, LSIs, etc • Other measures not addressed in NDAA include limits on sole source contracts and "excessive tiering“ of subcontracts • "Accountability in Contracting Act" (H.R. 1362) (Waxman) • Among other things, would impose limits on cost-plus, sole source contracts • Also includes “transparency” provisions (disclosure of audits and J&As) addressed in 2008 NDAA

7. Other Legislative Proposals (cont’d) • Other pending procurement-related bills include • "Defense Acquisition Reform Act" (S. 32) (McCain) • Would require mandatory compliance programs; provide for suspension/debarment for failing to report "improper conduct"; limit rollover of award fees; prohibit cost increases on DoD contracts unless caused by the Govt • “Honest Leadership and Accountability in Contracting Act” (S. 606) (Dorgan) • Would provide for suspension/debarment of contractors with a pattern of "overcharging the Government" or "failing to comply with the law, including tax, labor and employment, environmental, antitrust and consumer protection laws“ • “Executive Branch Reform Act” (H.R. 984) (Waxman and Davis) • Includes measures to close “revolving door," including 2-year "cooling off period” for certain former Govt officials

8. Competition/Protests

9. Competition/Protests • NDAA Sec. 843, “Enhanced Competition Requirements For Task And Delivery Order Contracts” • Task/Delivery Order Contracts Over $100M (Sec. 843(a)(1), (b)(1)) • Prohibits award of a task/delivery order contract in an amount estimated to exceed $100M (including all options) to a single source unless the head of the agency determines in writing that— • Anticipated task/delivery orders “are so integrally related that only a single source can reasonably perform the work”; • Contract provides only for FFP task/delivery orders and includes unit prices for products, or prices for “specific tasks to be performed” • Only one source is qualified, capable of performing at a reasonable price; or • It is “in the public interest to award to a single source” due to “exceptional circumstances” (and notice provided to Congress within 30 days) • Takes effect and applies to any task/delivery order issued 120 days after enactment of the NDAA • Applies to both DoD and civilian agency contracts

10. Competition/Protests • NDAA Sec. 843, “Enhanced Competition Requirements For Task And Delivery Order Contracts” • Task/Delivery Orders Over $5M (Sec. 843(a)(2), (b)(2)) • Provides that, in case of an individual task/delivery order in excess of $5M, requirement to provide all contractors a “fair opportunity” to be considered for award is not met unless all contractors are provided— • Notice of task/delivery order, including a clear statement of requirements; • A reasonable period of time to provide a proposal; • Disclosure of significant evaluation factors and subfactors (including cost or price), and relative importance; • A written statement documenting basis for award and relative importance of quality and price/cost factors; and • An opportunity for a post-award debriefing. • Takes effect and applies to any task/delivery order issued 120 days after enactment of the NDAA • Applies to both DoD and civilian agency contracts

11. Competition/Protests • NDAA Sec. 843, “Enhanced Competition Requirements For Task And Delivery Order Contracts” • Task/Delivery Order Protests (Sec. 843(a)(2), (b)(2)) • Current law prohibits protest of a task/delivery order except for protests based on the ground “that the order increases the scope, period, or maximum value of the contract under which the order is issued.” • 2008 NDAA expands this existing exception by allowing GAO to exercise exclusive jurisdiction over any protest of an order valued in excess of $10M • Takes effect 120 days after enactment of the NDAA, and continues for a period of three years • Applies to both DoD and civilian agencies

12. Commercial Items

13. Commercial Items • NDAA Sec. 805, “Procurement Of Commercial Services” • Services “Of A Type” Sold In Commercial Marketplace • Some suggestion while NDAA was in conference that Congress might eliminate “of a type” from definition of commercial services • As passed, NDAA would still allow DoD to treat services “of a type” offered and sold competitively in substantial quantities in the commercial marketplace as commercial items • However, NDAA as passed would required CO to determine “that the offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price for such services” • According to the Act, information required to determine price reasonableness of such service may include • “[P]rices paid for the same or similar commercial items under comparable terms and conditions by both government and commercial customers” or • “[O]ther relevant information regarding the basis for price or cost, including information on labor costs, material costs, and overhead rates”

14. Commercial Items • NDAA Sec. 805, “Procurement Of Commercial Services” • Time and Materials Services • SASC concerned that recent FAR rule on T&M services “exceeded [OFPP’s] authority” under SARA by identifying “any service . . . as being available for acquisition on a [T&M] basis’” • NDAA thus limits DoD’s use of commercial item T&M/LH contracts to • Emergency repair; • Services in support of a commercial item (“ancillary services”); or • Other services if CO determines (with approval from agency head) that • The services are “commercial items” • The offeror has provided sufficient information to determine price reasonableness • The services are “commonly sold to the general public” through T&M/LH contract • Use of T&M/LH contract “is in the best interest of the Government”

15. Commercial Items • NDAA Sec. 814, “Clarification Of Submission Of Cost Or Pricing Data On Noncommercial Modifications Of Commercial Items” • Currently, statutes and regulation require submission of cost and pricing data when the value of a non-commercial modification of a commercial item exceeds 5% or $500,000 • In an effort to harmonize this provision with the TINA threshhold (currently $550,000), the NDAA eliminates the fixed $500,000 threshold • Instead links the threshold for requiring cost or pricing data for modifications of commercial items to the indexed TINA threshold

16. Commercial Items • NDAA Sec. 815, “Clarification Of Rules Regarding The Procurement Of Commercial Items” • Would prohibit DoD from treating subsystems on major weapons systems as commercial items, unless the subsystem qualifies as a “commercially available off-the-shelf item” or the weapons system itself is being acquired as a commercial item • Also prohibits components and spares from being acquired as commercial items unless the system or subsystem qualifies as commercial • Directs that DFARS be modified to clarify that the terms ‘‘general public’’ and ‘‘nongovernmental entities,’’ for purposes of determining whether sales of a particular product or service qualify as “commercial,” do not include sales to the Federal Government or a State, local, or foreign government

17. Commercial Items • NDAA Sec. 821, “Plan For Restricting Government-unique Contract Clauses On Commercial Contracts” • Requires DoD to implement a plan to minimize number of government-unique contract clauses used in commercial contracts” except those • authorized by law or regulation, or • “relevant and necessary to a specific contract”

18. Commercial Items • NDAA Sec. 881, “Clearinghouse For Rapid Identification And Dissemination Of Commercial Information Technologies” • Requires creation of a “clearinghouse” of information about readily available IT that could support DoD’s warfighting mission • NDAA Sec. 887, “Defense Science Board Review Of DoD Policies And Procedures For The Acquisition Of IT” • Requires DSB to conduct a study of DoD’s policies and procedures regarding acquisition of IT, to address among other things • Policies and procedures for maximizing the usage of commercial information technology while ensuring the security of the microelectronics, software, and networks of the Department • NDAA Sec. 1109, “Pilot Program For Temporary Assignment Of IT Personnel To Private Sector Organizations” • Authorizes a pilot for DoD to temporarily assign up to 10 “exceptional” IT personnel (GS-11 or below) to a private sector employer

19. Transparency/Openness

20. Transparency/Openness • NDAA Sec. 844, “Public Disclosure Of Justification And Approval Documents For Noncompetitive Contracts” • Requires disclosure of justification and approval (J&A) prepared to justify award based on other than full and open competition (i.e., sole source) • Disclosure required within 30 days for sole source awards based on “unusual and compelling urgency,” 14 days for other sole source awards • Must be published on the agency website and a site designated by OFPP • Applies to both DoD and civilian agency contracts

21. Transparency/Openness • NDAA Sec. 845, “Disclosure Of Government Contractor Audit Findings” • Requires each agency IG (as well as DCAA) to provide, as part of its semi-annual report to Congress, a summary of all “final, completed contract audits” containing “significant audit findings” • Defines “significant” as any finding of unsupported, questioned, or disallowed costs over $10M, or other findings the IG deems significant • Report to include a brief description of the nature of the finding, as well as amount of cost identified as “unsupported, questioned, or disallowed” • Also requires agency to provide Congressional committees, on request, a full, unredacted copy of any audit described in the report • Agency to identify any information exempt from disclosure under FOIA • Does not require disclosure of classified information or information otherwise exempt from disclosure under FOIA • Applies to both DoD and civilian agency contracts

22. Transparency/Openness • “OPEN Government Act of 2007” • Signed into law on December 31, 2007, the Act makes various changes designed to expand and expedite processing of requests under the Freedom of Information Act (FOIA) • Includes a provision which modifies the definition of “record” subject to FOIA to include “any information . . . that is maintained for an agency by an entity under Government contract, for the purposes of records management.” (Sec. 9) • Based on legislative history, should apply only to contractors for "records management" services (i.e., “contractors licensed by the government to undertake recordkeeping functions”), not entire universe of contractors.

23. Oversight/Accountability

24. Oversight/Accountability • NDAA Sec. 846, “Protection For Contractor Employees From Reprisal For Disclosure Of Certain Information” • Expands protections for contractor employees who provide a Member of Congress (or Congressional committee, IG, GAO or DoD employee) information the employee “reasonably believes” is evidence of • gross mismanagement of a DoD contract or grant, • a gross waste of DoD funds, • a substantial and specific danger to public health or safety, or • a violation of law related to a DoD contract • Applies only to employees of DoD contractors

25. Oversight/Accountability • NDAA Sec. 847, “Requirements For Senior DoD Officials Seeking Employment With Defense Contractors” • Requires certain DoD officials (or former officials) request a written opinion from the appropriate DoD ethics official before receiving compensation from a DoD Contractor within two years after leaving DoD • Request must be made in writing, to DoD ethics official “having responsibility for the organization in which the official or former official serves or served” • Request must set forth “all information relevant to the request,” including information relating to government positions held and major duties, “actions taken concerning future employment, positions sought, and future job descriptions, if applicable” • Within 30 days, DoD ethics official is to issue written opinion regarding “applicability or inapplicability of post-employment restrictions to activities that the official or former official may undertake on behalf of a contractor” • Contractors are prohibited from knowingly paying compensation to any former DoD official within two years of the official’s service, without first determining that the official has or has not obtained ethics opinion

26. Oversight/Accountability • NDAA Sec. 847, “Requirements For Senior DoD Officials Seeking Employment With Defense Contractors” (cont’d) • Section 847 covers former DoD officials who participated “personally and substantially” in an acquisition with a value in excess of $10M, who serves or served • In an Executive Schedule position; • In a position in the Senior Executive Service; or • In a general or flag officer position (grade O–7 or above); • As a program manager, deputy program manager, procuring contracting officer, administrative contracting officer, source selection authority, member of the source selection evaluation board, or chief of a financial or technical evaluation team for a contract in an amount in excess of $10M • Penalties for violating the restrictions in Section 847 include • Cancellation of the procurement, if a contract has not been awarded; • Rescission of a contract; • Initiation of suspension or debarment proceedings; or • Initiation of adverse personnel action.

27. Oversight/Accountability • NDAA Sec. 848, “Report On Contractor Ethics Programs Of Major Defense Contractors” • Would require “major defense contractors” (i.e., those with more than $500M in DoD contracts in 2006) to report to GAO on current ethics programs and controls • GAO is to compile the information and report to Congress on the extent to which contractors have, and whether such systems include • Mechanisms for internal reporting (e.g., company hotlines) as well as external reporting (e.g., IG hotlines) of conduct that may violate applicable law; • Ethics training, as well as disciplinary action for employees; • Internal audits and reviews, as well as management oversight; and • Self-reporting requirements. • GAO also to make recommendations on “advantages and disadvantages of legislation requiring that defense contractors develop internal ethics programs and requiring that specific elements be included in such ethics programs”

28. Oversight/Accountability • Sec. 801, “Internal Controls For Procurements On Behalf Of DoD By Non-Defense Agencies” (Interagency Contracts) • Would require DoD IG to work with IGs from designated non-defense agencies (GSA, Treasury, DOI, NASA, VA and NIH) to jointly determine whether those agencies’ “procurement policies, procedures, and internal controls” are “compliant with defense procurement requirements” • Phased reviews, beginning in 2010 (GSA), continuing in 2011 (Treasury, DOI, NASA) and ending in 2012 (VA, NIH) • Would prohibit DoD from making purchases over the simplified acquisition threshold through one of the designated agencies if DoD IG and Agency IG determine that the designated agencies’ procurement policies are “not compliant with defense procurement requirements” • Would also prohibit DoD from making purchases over the simplified acquisition threshold through any other non-defense agency unless the head of that agency has certified “that the non-defense agency will comply with defense procurement requirements”

29. Oversight/Accountability • NDAA Sec. 802, “Lead Systems Integrators” (LSIs) • Effective October 1, 2010, would prohibit DoD from awarding any new LSI contracts to contractors that were not performing LSI role as of the 2008 NDAA • Would also prohibit award of contracts for LSIs on major systems that are past LRIP, unless it is “not practicable” to proceed without LSI • For purposes of these restrictions, LSI defined as prime contractor that-- • “is not expected at the time of award to perform a substantial portion of the work on the system and the major subsystems”; or • “is to perform acquisition functions closely associated with inherently governmental functions” • Would still allow DoD to contract for “acquisition support functions,” so long as contractor does not perform “inherently governmental functions” and Federal employees are responsible for • “[D]etermining courses of action to be taken in the best interest of the government” and • “[D]etermining best technical performance for the warfighter”

30. Oversight/Accountability • NDAA Sec. 809, “Undefinitized Contractual Actions” • Requires Sec Def to issue guidance and instructions to DoD to ensure “implementation and enforcement of requirements applicable to undefinitized contractual actions,” to include • Circumstances in which it is, and is not, appropriate to use UCAs; • Approval requirements and thresholds for using UCAs; • Procedures for ensuring timelines for definitizing UCAs • Narrower than other pending bills, such as Sen. Collins’ “Accountability in Government Contracting Act of 2007” (S. 680), which would authorize the agency to unilaterally determine (subject to the Disputes process) all missing terms in an undefinitized letter contract that have not been agreed upon within 180 days

31. Oversight/Accountability • NDAA Sec. 811, “Requirements Applicable To Multiyear Contracts For The Procurement Of Major Systems Of The Department Of Defense” • Requires Secretary of Defense to certify in writing that certain determinations have been made before awarding a multiyear contract in excess of $500M. • In adopting this provision, Congress expressed its view that “contracts for major systems providing savings estimated at less than 10 percent should only be considered [for award of a multiyear contract] if the Department presents an exceptionally strong case” that the proposal meets the other requirements for multiyear contracting • Congress also expressed the view, reflected in a report from GAO, that any major system that is at the end of its production line is unlikely to meet these standards and therefore would be a poor candidate for a multiyear procurement contract.” • NDAA Sec. 828, “Multiyear Contract Authority For Electricity From Renewable Energy Sources” • Allows DoD to enter into a multi-year contract of up to 10 years (twice the length of standard multi-year contracts) for the purchase of electricity from “sources of renewable energy,” as is defined in NEPA

32. Iraqi Contracts

33. Iraqi Contracts • NDAA Sec. 841, “Commission On Wartime Contracting In Iraq And Afghanistan” • Establishes an eight member “Commission on Wartime Contracting” to study waste, fraud, and abuse and make recommendations on use of contractors to perform security, other functions in Iraq and Afghanistan • NDAA Sec. 842, “Investigation Of Waste, Fraud, And Abuse In Wartime Contracts And Contracting Processes In Iraq And Afghanistan” • Directs DoD IG, Special IG for Iraq and new Special IG for Afghanistan (to be appointed under NDAA Sec. 1229), to conduct “thorough audits” of contracts/subcontracts/task/delivery orders for logistical support, security and reconstruction • NDAA Sec. 863, “Comptroller General Reviews And Reports On Contracting In Iraq And Afghanistan” • Requires GAO to issue annual report on contracts in Iraq and Afghanistan

34. Iraqi Contracts • NDAA Sec. 862, “Contractors Performing Private Security Functions In Areas Of Combat Operations” • Within 120 days, DoD (in consultation with State) to develop regulations, regarding “selection, training, equipping, and conduct of personnel performing private security functions under a covered contract in an area of combat operations” • Regulations to address, among other things, procedures for • Accounting for personnel, weapons and military vehicles operated by contractors performing private security functions; • Reporting of certain incidents (e.g., weapons discharged, persons are killed or injured, or property is destroyed); • Independent review and investigation of reported incidents and alleged misconduct; and • Requirements for qualification, training, screening and security for personnel performing private security functions.

35. Iraqi Contracts • NDAA Sec. 862, “Contractors Performing Private Security Functions In Areas Of Combat Operations” (cont’d) • Section 862 also requires FAR Council to develop contract clause within 180 days to address “selection, training, equipping, and conduct” of private security contractor personnel • Clause must require that contractors brief personnel, and “cooperate with any investigation conducted by [DoD] by providing access to employees of the contractor and relevant information in the possession of the contractor regarding the incident concerned” • Penalties for non-compliance may include removal of contractor personnel (at the contractor’s own expense), or termination for default in the case of a gross or repeated violations. • IG also to study the “feasibility and advisability” of a pilot program to impose “fines on contractors for personnel who violate or fail to comply with applicable requirements of the clause • Applies to covered contracts in an area of combat operations (including Iraq and Afghanistan) awarded 180 days after enactment of the NDAA

36. Specialty Metals

37. Specialty Metals • NDAA Sec. 804, “Clarification Of The Protection Of Strategic Materials Critical To National Security” (Berry Amendment) • Under the so-called “Berry Amendment” (10 U.S.C. § 2533b), DoD is generally prohibited from acquiring certain end items, or components thereof, that contain a specialty metal not melted or produced in the United States • NDAA would codify and expand recent changes to DoD rules and guidance on Berry Amendment, by enacting exceptions for • COTS items • Electronic Components • “Commercial Derivative Military Articles” • Components with “de minimis” specialty metals content • Items necessary to National Security

38. Specialty Metals • NDAA Sec. 804, “Clarification Of The Protection Of Strategic Materials Critical To National Security” (cont’d) • COTS Exception • NDAA codifies recent DFARS exception for “COTS” items, which are defined as: • Commercial items; • Sold in substantial quantities in commercial marketplace; and • Offered to Government, without modification, in same form sold in commercial marketplace • COTS exception does not apply to contracts or subcontracts for acquisition of specialty metals (as well as forgings, castings, magnets or fasteners) that have not been incorporated into COTS end items or subsystems. • Also creates a separate exception for COTS fasteners, if the manufacturer of those fasteners has certified that at least 50% of the specialty metals required to produce those fasteners for DoD and other customers in a given calendar year will be purchased domestically

39. Specialty Metals • NDAA Sec. 804, “Clarification Of The Protection Of Strategic Materials Critical To National Security” (cont’d) • Exception for Electronics Components • Expands existing exception for “commercially available electronic components” which applies to electronic components whose specialty metal content is “de minimis” • December 6, 2006 DoD Policy Memorandum interpreted de minimis to mean less than 10% of the value of the lowest level electronic component • Section 804 creates an exception for all electronic components, regardless of value of specialty metal content, unless the Secretary of Defense determines the domestic availability of a particular electronic component is critical to national security

40. Specialty Metals • NDAA Sec. 804, “Clarification Of The Protection Of Strategic Materials Critical To National Security” (cont’d) • Commercial Derivative Military Articles • NDAA creates an exception for “commercial derivative military articles,” if contractor certifies that it and its subcontractors have entered into a contractual agreement to purchase an amount of domestically melted specialty metals equal to • 120% of the amount of specialty metal required to produce the commercial derivative military article; or • 50% of the amount of specialty metal required to produce the commercial derivative military article and the related commercial article. • “Commercial Derivative Military Article” defined as “[A]n item procured by the Department of Defense that is or will be produced using the same production facilities, a common supply chain, and the same or similar production processes that are used for the production of articles predominantly used by the general public or by nongovernmental entities for purposed other than governmental purposes”

41. Specialty Metals • NDAA Sec. 804, “Clarification Of The Protection Of Strategic Materials Critical To National Security” (cont’d) • De Minimis Exception • Creates de minimis exception for items in which noncompliant specialty metals do not make up more than 2% of the item’s total weight • Applies to any item (except high performance magnets), not just electronic components • National Security Waiver • Allows DoD to accept deliver of non-compliant items if Sec Def (or certain delegates) determine in writing that acceptance of the item is necessary to national security • If Secretary determines noncompliance was “knowing and willful,” contractor could be referred for suspension or debarment

42. Questions? • Contact: Rand Allen202.719.7329rallen@wileyrein.com