RGCI-Understanding Which Thresholds Apply to Your Government ContractsAll too often, contractors have a dilemma as to which changing dollar threshold should be inserted into company policy.  You may recall that there has been considerable debate around changing dollar thresholds around TINA, CAS, and even the executive comp ceiling from a few years back.  There is now a proposed rule before the FAR Council is seeking to eliminate this confusion.  This rule will also reduce the administrative workload in processing changing dollar thresholds throughout the FAR.  

Inflationary Adjustments Under Section 821

The Department of Defense, General Services Administration, and National Aeronautics and Space Administration are proposing to amend the Federal Acquisition Regulation to address inflation adjustments of statutory acquisition-related thresholds. The rule implements section 821 of the National Defense Authorization Act for Fiscal Year 2018 (PL 115-91). A proposed change to FAR 1.109 explains that section 821 requires five-year inflationary adjustments under 41 USC 1908 to be applied to contracts and subcontracts without regard to the date of the contract or subcontract award. Therefore, if a threshold is adjusted for inflation under §1908, the new threshold applies throughout the remaining term of the contract, unless there is a subsequent threshold adjustment.

Certain public law thresholds may only be updated by Congressional approval.  Congress passes these threshold laws and then gives our regulators (FAR Council, et al.) a finite period of time to implement the thresholds into regulation.  With this proposed change, however, the length of time from law to regulatory change would be expedited from the typical 180-day period.

Dollar Threshold Discrepancies

The core issue and perennial debate at present is what is a contractor to think if the FAR Council does not write this into the FAR within the prescribed period of time required by law.  In the fiscal year 2018 NDAA, Section 811, Congress has increased the dollar threshold for the submission of certified cost or pricing data. Per the FAR, the Truth in Negotiations Act (“TINA”) threshold is $750,000. NDAA Section 811 includes a provision that increases the threshold up to $2,000,000 (effective July 1, 2018). The threshold for CAS is legally tied to the TINA threshold (48 CFR 9901.306), therefore it will be increased to $2,000,000 as well.  Of note, this change does not change the $50 mil for full CAS coverage. As a result, it will likely shrink the amount of CAS covered contracts held by full CAS Covered contractor.

In the case above, the FAR Council did not enact the change within FAR within the prescribed period of time, which created a conflict for contractors seeking to remain compliant.  Public law states the new thresholds for TINA, etc. but the FAR remains outdated.  The proposed rule would alleviate this issue by changing the language of the FAR to be more vague when it comes to the dollar value of the threshold.  The language used would replace numerical values throughout the FAR with the term “micro-purchase threshold,” “simplified acquisition threshold,” or reference applicable public law in the case of thresholds for TINA and CAS. This would allow for contractors to know that the applicable threshold is what has been enacted and the FAR can remain vague. 

Numerical Values Removed

The rule would:

  • replace numerical values throughout the FAR with the term “micro-purchase threshold” or “simplified acquisition threshold.”
  • change to FAR 15.403-4 explains that if a clause refers to the certified cost or pricing data threshold, and if the threshold is adjusted for inflation, then the changed threshold applies throughout the remaining term of the contract, unless there is a subsequent threshold adjustment.
  • change FAR 30.201-1 to state that the lower threshold for Cost Accounting Standards applicability is the amount set forth in 10 USC 2306a(a)(1)(A)(i), as adjusted for inflation. The rule would make corresponding changes to the CAS solicitation provision and contract clauses at FAR 52.230-1through FAR 52.230-5.

Recommendations

This process will make the regulatory process of enacting FAR changes easier on the part of the FAR Council, and perhaps easier on the part of contractors anxious to use the new thresholds when a higher dollar threshold makes their lives easier.  It will, however, make things more difficult on the part of contractors in maintaining their own policies and procedures and keeping personnel informed when threshold changes impact their roles (primarily within procurement, subcontract administration and estimating).

First and foremost, it is important to be aware that this is a proposed rule and still has a long way to go to become final.  Comments referencing FAR Case 2018-007 are due August 23, 2019.

Secondly, if the rule is made final, contractors will have a decision to make with regard to policies and training.  Much like the FAR Council, utilizing the definition rather than the specific dollar value will minimize the necessary policy updates, but this will not inform your personnel.  Most employees are not going to go and look up Public Law regularly to determine which threshold to apply.  Our recommendation would be to establish a single policy devoted to regulatory thresholds that can be a quick reference guide for staff using your policies and procedures.  It will be critical to ensure this document has an owner vested with the responsibility for maintaining it organization-wide and also communicating to your internal stakeholders as changes occur.

The team at Redstone Government Consulting is well-versed in FAR rules; additionally, our consultants monitor the rapidly-changing landscape of regulations which can affect government contracts. To stay on top of this complicated industry, we offer consulting and training for contractors of all sizes. Check out our training options and browse our blog for current information about government contracting. 

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Written by Charles Hamm, Esq.

Charles Hamm, Esq. Background Charlie is a Managing Consultant with Redstone Government Consulting, Inc., located in our firm’s Huntsville, Alabama office. His areas of expertise include working with government contracting issues, risk assessments, unallowable costs, policies, procedures and current regulations. His legal background and his continuous involvement with our high level DCAA experts and legal experts provides him an ability to assist our customers in interpreting and understanding the regulations beyond what would normally be expected from a staff Senior Consultant. His background in finance coupled with his law degree is a benefit to our customers and our team. Professional Experience Mr. Hamm’s experience includes analyzing government contracts and providing support to government contractors. In addition, Charlie has experience assisting clients with Federal Acquisitions Regulations (FAR) best practices and compliance. His legal background allows him to have a diverse viewpoint of the aspects associated with government contracting. Prior to joining Redstone Government Consulting, Inc., he worked with law offices in various areas of the law. His role with the Mississippi Center for Justice in Jackson, MS included working with foreclosures as well as assisting his clients apply for government exemptions. His work with a family law firm (JSA Law in Memphis, TN) consisted of evaluating asset distribution through relevant case law. Education Charlie graduated with a BSBA in Finance with a Concentration in Investment Management from the University of Alabama in 2009. Charlie also received his Juris Doctorate from Mississippi College School of Law in 2013 and was admitted to the Alabama State Bar in 2014.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Contracts Administration, Government Regulations