Piliero, Mazza & Pargament, PLLC  Vol. 3, Issue 5   Sept/Oct 2001

An Update for Federal Contractors and Commercial Businesses


GOVERNMENT CONTRACTING Proposed Rule Would Clarify Task Order Procedures

COURT WATCH Administration Argues in Favor of DBE Program in Adarand Case

ON THE HILL TRAC Update: Defense Authorization Bill Brings Outsourcing Conflict to the Forefront

SMALL BUSINESS Contract Bundling Again in the Spotlight


Proposed Rule Would Clarify Task Order Procedures

The Administration has proposed new regulations that are designed to clarify the steps that agencies should take when placing orders under task-order and delivery-order contracts established by another agency. It is hoped that these new regulations will clarify some of the ambiguity that has plagued task-order and delivery-order contracting.

Among other things, the proposed rule is intended to:

1. Increase attention to modular contracting principles to help agencies avoid unnecessarily large and inadequately defined orders;

2. Facilitate information exchange so that contractors may propose solutions that enable the government to award performance-based orders; and

3. Revise existing requirements to address the issuance of sole source orders as logical follow-ons to orders already issued under the contract.

With respect to acquisition planning, the proposed regulations seek to encourage more deliberation by agency acquisition planners before they place orders under a governmentwide acquisition contract ("GWAC"), a task-order or delivery-order contract established by another agency, or the multiple award schedule ("MAS") program. The proposed regulations specifically state that such orders are not exempt from acquisition planning requirements. For example, the proposed regulations would ensure that acquisition planning for these types of contracting actions begins as soon as the agency need is established, and that written acquisition plans include analyses of the contract type, special clauses, and appropriate capital planning.

Under the proposed rule, acquisition plans would also be required to include an analysis of whether ordering through a GWAC, MAS or other task-order type vehicle "facilitates access to small business concerns, including small disadvantaged business concerns, 8(a) contractors women-owned small business concerns, HUBZone small business concerns, veteran-owned small business concerns, or service-disabled veteran-owned small business concerns." Although implementation of this provision would be a positive step for small businesses, its impact may be questionable given the ambiguity of the language.

With respect to ordering procedures, the proposed regulations would require orders to describe all services to be delivered so that the full cost for performance of the work can be established when the order is placed. Also, orders would be required to be within the scope of the underlying contract, and issued within the period of performance and within the maximum value of the contract.

Comments on the proposed rule may be submitted on, or before, October 22, 2001. We would be happy to assist interested parties in presenting their views on this issue.



Administration Argues in Favor of DBE Program in Adarand Case

In the most recent phase of the Adarand case, the Administration filed its brief supporting the constitutionality of the Department of Transportation's ("DOT") revised Disadvantaged Business Enterprise ("DBE") program.

The Adarand case has spanned the past seven years. In its landmark Adarand decision in 1995, the U.S. Supreme Court rendered an opinion that heightened the constitutional standard by which such set-aside programs must be reviewed. Earlier this year, the Supreme Court agreed to again hear the same Adarand case that led to the 1995 decision. The present case (which is referred to as Adarand VIII because it will be the eighth court decision rendered in the matter) will involve many of the same issues addressed in the 1995 decision. Although the facts center around the constitutionality of a DOT program, the case has always been closely followed by the minority small business community because the constitutionality of more popular federal race-based programs, such as the 8(a) program, may be directly or indirectly affected.

The case began when Adarand Constructors, a non-minority owned contractor, challenged a DOT program that provided a financial bonus of up to 10% to prime contractors under federal highway construction contracts that used DBE's as subcontractors. Following the Supreme Court's ruling in 1995 that federal courts must apply "strict scrutiny" to such race-conscious programs, the DOT's program was revised in an effort to comply with that heightened standard. Last September, a federal appeals court held that the changes made to the program satisfied constitutional strict scrutiny. Adarand Constructors, however, continued to challenge the constitutionality of the program, and earlier this year, the Supreme Court agreed to hear the case once again. The parties have been briefing the issues during the past several months.

The Administration=s brief was filed by Solicitor General Theodore B. Olson, who was recently appointed by President Bush. Some within the minority small business community had feared the newly appointed Solicitor General might veer from the position of strong support for the DBE program that had been taken by the Clinton Administration in past years.

Solicitor General Olson's brief, however, has continued the path of the previous Administration. The brief emphasized that the program, as revised, is not unconstitutional on its face. The Solicitor General maintains that Congress authorized the DOT to implement the program "against a backdrop of extensive evidence of public and private discrimination in highway contracting." He also argues that the program was authorized only after race-neutral efforts to improve access to capital and ease bonding requirements had failed.

The Solicitor General also argues in his brief that, notwithstanding the program's racial presumption, the implementing regulations seek to limit DBE status to firms owned by individuals who have suffered the effects of discrimination. As further evidence that the program is narrowly tailored to a compelling interest, he noted that state and local recipients of federal aid must assess the local market to determine whether there is a need for race-conscious remedies given the extent of the effects of discrimination in their jurisdictions. He concludes that race-conscious measures are designed to be used only as a "last resort."

We will continue to provide updates on all developments in this important case.



TRAC Update: Defense Authorization Bill Brings Outsourcing Conflict to the Forefront

As Congress reconvenes from the August recess, the federal government=s increased reliance on outsourcing is likely to be one of the most closely watched federal contracting issues on the agenda. The results of these deliberations will have a significant impact on service contractors.

In recent years, federal agencies have increasingly outsourced work which had traditionally been performed by government employees. Agencies that have relied on outsourcing typically cite the resulting cost savings as the main justification for the procedure.
In determining whether outsourcing will save money, many agencies use the procedures contained in Office of Management and Budget ("OMB") Circular A-76. Under OMB Circular A-76, public-private competitions are required under certain circumstances before work is moved from civilian employees to private contractors. However, under the current guidelines, the A-76 process is not required to be used by agencies before contracting out.

The impact of outsourcing work to the private sector has been the subject of much debate. Some agencies, including the DOD, have reported savings through the use of outsourcing. However, because of the small sample of available DOD data, the extent of DOD's alleged savings has been questioned by the General Accounting Office.

Some members of Congress support the outsourcing of commercial activities, while others argue that greater precautions should be taken before outsourcing work that has been traditionally handled by government employees. Representative Albert Wynn (D-MD) and Senator Richard Durbin (D-IL) have introduced the "Truthfulness, Responsibility, and Accountability in Contracting ("TRAC") Act." This legislation would bring a halt to all outsourcing by government agencies to the private sector until certain conditions are met. Specifically, the halt would last until agencies conduct reviews that show by conclusive evidence that outsourcing savings are being achieved through the use of the A-76 process. When evidence shows that outsourcing costs exceed the costs of federal employee performance, an agency would have to either conduct a new public-private competition or convert the performance of the work to federal employees. Additionally, all future outsourcing decisions would be contingent on the results of an A-76 public-private competition process.

The outsourcing debate in Congress has focused approval on the National Defense Authorization Act for Fiscal Year 2002. On August 1, 2001, the House Armed Services Committee approved their version of the Defense Authorization legislation. During the committee=s consideration of the bill, language was added that could potentially make it harder for DOD to outsource jobs to private contractors. Representative Neil Abercrombie (D-HI) offered an amendment similar to TRAC. The amendment would require that DOD conduct A-76 public-private competitions before outsourcing work currently performed by DOD employees to private contractors. However, unlike TRAC, the Abercrombie amendment would not halt all outsourcing pending a review of cost savings. Additionally, the Abercrombie amendment=s TRAC-like requirements would only apply to the DOD, and not to other agencies. After extensive debate, the Armed Services Committee passed the amendment by a vote of 34-25.

Similarly, Senator Daniel Akaka (D-HI) attempted to insert TRAC-like language when the Senate Armed Services Committee marked up its version of the Defense Authorization bill. However, at the markup session, Senator John Warner (R-VA) urged Senator Akaka to remove the language from the bill. Senator Akaka agreed and the committee removed the language from the bill by a voice vote. It is unclear at this time if either Senator Akaka or any other Senator will attempt to reintroduce the language when the measure is debated on the Senate floor.

President Bush opposes both TRAC and the Abercrombie amendment, although he has not said if he will veto the Defense Authorization bill if such a provision is included in the final package. The House Government Reform Committee had sought sequential referral of the House version of the bill, stating that the amendment is within their jurisdiction, but their request was denied. If the referral had been granted, the Government Reform Committee might have sought to eliminate the language of the Abercrombie amendment from the bill. It is also possible that there will be efforts to remove the Abercrombie amendment on the House floor when the bill is debated before the full chamber.

The Legal Advisor will continue to monitor and report on any changes to the outsourcing process, including updates on both TRAC and the Abercrombie amendment.



Contract Bundling Again in the Spotlight

The issue of contract bundling by government agencies and its impact on small businesses has been a concern of the Small Business Administration ("SBA") for quite some time. Several attempts to fine tune the Small Business Act to adequately protect small businesses from the growing tendency of government agencies to combine contract requirements have been made in the past. However, the deterrent affect of these changes on contract bundling has been the discussion of debate. In an effort to put more "teeth" in anti-bundling rules, Representative Nydia Velazquez (D-NY) introduced a new piece of legislation, H.R. 2867, on September 6, 2001.

The bill, referred to as the "Small Business Enhancement Act of 2001, would amend Section 15 of the Small Business Act in three major areas. It authorizes SBA to appeal to the Office of Budget and Management ("OMB") when its recommendations to federal government agencies concerning contract bundling have been ignored. Second, it would allow OMB ten days to respond to the appeal. And third, it would give small business 60 days to prepare bids on a solicitation containing bundled contracts.

A sister piece of legislation, H.R.1324 - "Small Business Contract Equity Act of 2001" - introduced by Representative Velazquez earlier this year, sets forth certain procedures that federal agencies must follow concerning the bundling of contract requirements. This bill has been referred to the House Government Committee's Subcommittee on Technology and Procurement Policy.

The Legal Advisor will continue to monitor proposed contract bundling legislation and periodically report on its progress through the system.


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