Are the New DoD Final Rulings Important for Government Contractors?

The Department of Defense (DoD) released new final rulings on October 28, 2022, but what are they and are they really important? Let’s look at significant ones and what’s important:

Final Ruling on Requiring Other than Cost or Pricing Data (DFARS Case 2020-D008)

DFARS Case 2020-D008

As background, contracting officers are tasked with awarding contracts that are “fair and reasonable.” The Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiation, provides contracting officers guidance for obtaining this fair and reasonable pricing and some may require cost or pricing data for this determination. However, in other procurements, where cost or pricing data is not used, contracting officers may require other than cost or pricing data be used for making a fair and reasonable price determination.

This final ruling implements the National Defense Authorization Act (NDAA) for 2020 that provides additional requirements when providing other than cost or pricing data. This ruling prohibits contracting officers from determining that the price of a contract or subcontract is fair and reasonable based solely on historical prices paid and to state that an offeror is ineligible for award if the contracting officer is unable to determine proposed prices are “fair and reasonable” by any other means, when an offeror fails to make a “good faith effort” to comply with a reasonable request to submit data other than certified cost or pricing data, unless the head of the contracting activity (HCA) determines that it is in the best interest of the Government to make the award to that offeror.

Under this rule, historical prices paid by the Government cannot properly comprise the only factor when determining prices fair and reasonable, but rather may be used as one factor among several. The application of this rule is also a flow down requirement for subcontracts. The contracting officer would be responsible to assess and evaluate the analysis performed by the prime on its subcontractors to ensure they considered additional data aside from the previous prices paid.

This Rule Impacts

1. the contracting officer’s need for data other than historical prices paid by the Government, unless there is adequate price competition; and
2. the criteria for the head of the contracting activity’s determination to make an award.

What’s important in this ruling is that historical pricing would not be the ONLY factor and would allow for other factors to be allowed such as inflation, current labor market and costs associated with raw materials to be brought into the pricing equation. These factors could now be considered in the determination of “fair and reasonable” pricing. There is also a problem of what is a “good faith” effort by the offeror. There were no criteria specifying what would be deemed a “good faith” from one that is not and how much contractor information is needed to be furnished. Also, it does not specify what factors contracting officers will use beyond historical pricing. However, under current inflationary times that we are living in now, looking beyond mere historical pricing may be a benefit to potential contractors in estimating what goods and services now will cost.

At Redstone Government Consulting, we furnished comments to this DFARS case regarding:

Clarify that the prohibition does not restrict the contracting officer from relying on prior cost or price analysis

The final ruling addressed this stating that the Government would not be able to disclose price information unless the contractors involved agreed to the release of the data. The contracting officer would be responsible to assess and evaluate the analysis performed by the prime on their subcontractors to ensure they considered additional data aside from the previous prices paid.

Does the requirement flow down to contractors?

The final ruling addressed this through their discussion in the final ruling that the rule does apply to subcontracts, and that DoD concurs with adding the word “subcontract” to 215.403-3(a)(4) to reflect the statutory language at section 803 of the NDAA for FY 2020.

If the requirement is intended to be flowed down the proposed rule will have to be expanded to include a new DFARS 252 contract clause, addressing:

• DFARS 215.403-3(a)(4) Determination by the Head of the Contracting Activity – The final ruling addressed this stating the contractor would not need to develop a package for the contracting officer to submit to the HCA. The HCA would be making that decision based upon the inputs from the Government team, whether it was at the prime or subcontract level, and any inputs from the contractor would be limited to providing supporting data to the contracting officer.

• DFARS 215.404-1(b)(ii) Pricing based solely on historical prices paid by the Government - The final ruling addressed this stating the Government would not be able to disclose price information unless the contractors involved agreed to the release of the data. The contracting officer would be responsible to assess and evaluate the analysis performed by the prime on their subcontractors to ensure they considered additional data aside from the previous prices paid.

• DFARS 242.1502 Notation in Contractor Performance Assessment Reporting System (CPARS) - Contractors will not be required to track information about subcontractors providing cost data similar to CPARS. The contracting officer would be responsible for tracking this information for prime contractors and its subcontractors.

Repeal of Preference for Fixed-Priced Contracts (DFARS Case 2022-D007)

DFARS Case 2022-D007

This final ruling implements the 2022 NDAA removes the requirement that contracting officers to first consider fixed-price contracts, including fixed-price incentive contracts, when determining contract type and to obtain HCA approval for certain cost-reimbursement contracts. This new rule removes the $25 million HCA approval required prior to awarding cost-reimbursable contracts. This also created a fixed-type contract favored environment for awarding contracts.

What’s important in this final ruling removes a hurdle from considering cost-type contracts in a procurement from the beginning of award consideration and remove further approvals, such as HCA, when awarding cost-type contracts. This change will provide more flexibility to contracting activities, but time will tell how well this opens the door for more cost-type contracts.

Prohibition on Contractors That Require Certain Nondisclosure Agreements (DFARS Case 2021-D018)

DFARS Case 2021-D018

This final ruling implements 2021 NDAA that prohibits the award of any DoD contracts to an entity that requires its employees to sign internal confidentiality agreements or statements that would prohibit or otherwise restrict its employees from lawfully reporting waste, fraud, or abuse related to a DoD contract performance to a designated investigative or law enforcement representative authorized to receive such information. This also requires entities to inform its employees of the limitations on confidentiality agreements or other statements. Offerors are required to represent compliance with the statutory restrictions in the System for Award Management prior to submitting an offer or quote. An employee of a contractor or subcontractor may not be discharged, demoted, or otherwise discriminated against as a reprisal for such a disclosure. This does not apply to elements of the intelligence committee.

What’s important is this final ruling eliminates barriers for contractor/subcontractor employees in reporting acquisition fraud, waste and abuse and allows for enhanced procurement integrity through contractor restrictions. It potential eliminates conflicts between acquisition rules that promote having a hotline to allow employees and others from reporting issues of fraud, waste and abuse from the nondisclosure agreements preventing such reporting.

Reporting Tax Information on Certain Foreign Procurements (DFARS Case 2021-D029)

DFARS Case 2021-D029

This final ruling allows for the efficient and accurate identification of contracts subject to excise tax withholding. This rule creates a new DFARS clause 252.229-7014, Full Exemption from Two-Percent Excise Tax on Certain Foreign Procurements. The clause at DFARS 252.229-7014 is prescribed at DFARS 229.402-70(k) for use in contracts that include the clause at Federal Acquisition Regulation (FAR) 52.229-12, Tax on Certain Foreign Procurements, for which the contractor represented in its offer that it is a foreign person and is fully exempt from the tax for reasons cited on their Internal Revenue Service (IRS) Form W-14. FAR 52.229-12 is used when FAR 52.229-11, Tax on Certain Foreign Procurements – Notice and Representation, is used; and FAR 52.229-11 does not apply to acquisitions that do not exceed the SAT. Accordingly, DoD is not applying the rule to acquisitions at or below the SAT but is applying the rule to the acquisition of commercial services and commercial products, including COTS items.

What’s important is, that if you have foreign contracts, this DFARS clause 252.229-7014 is intended to provide a simple and efficient way for contracting officers to alert the DoD payment systems and networks that a contractor claimed a full exemption from the two-percent excise tax in its offer, thereby preventing erroneous withholding of the tax. Not applying the clause to contracts for the acquisition of commercial services and commercial products, including commercial off the shelf (COTS) items, would exclude contracts intended to be covered by this rule. Consequently, DoD is applying the rule to contracts for the acquisition of commercial services and commercial products, including COTS items.

Requirement for Firms Used to Support Department of Defense Audits (DFARS Case 2019–D010)

DFARS Case 2019–D010

This final ruling implements the 2019 NDAA and requires accounting firms (also firms other than accounting firms) that provide financial statement auditing or audit remediation services in support of the Financial Improvement and Audit Remediation Plan to provide to DoD a statement setting forth the details of any disciplinary proceedings with respect to the accounting firm or its associated persons before any entity with the authority to enforce compliance with rules or laws applying to audit services offered by the accounting firm.

What’s important is if you are in this category and have disciplinary proceedings this creates the opportunity to state your case and still be considered for a potential contract award.

Removal of Pilot Program for Acquisition of Military-Purpose Non-developmental Items (DFARS Case 2022-D022)

DFARS Case 2022-D022

This final ruling removes the Pilot Program for Acquisition of Military-Purpose Non-developmental Items, since the statutory authority for the program has expired. The pilot program expired at the end of calendar year 2019. No contracts have been award since its expiration.

What’s important is this updates the DFARS and your contracts should not have this clause unless you still have open pilot program contracts.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractor with the process of establishing and revising provisional billing rates and preparing adjustment vouchers. We would be happy to be part of your team.