June 28, 2004

On June 18, 2004, the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration issued a final rule, promulgated in Subpart 8.4 of the FAR, providing significant clarification regarding the procedures associated with the Federal Supply Schedule ("FSS") program and Blanket Purchase Agreements ("BPAs").  These new FAR provisions take effect July 19, 2004.

Companies that seek to contract with the federal government for the provision of FSS services should take note of the impact of these regulatory amendments on the acquisition process.  The changes include:

• Provisions regarding the use of statements of work when acquiring services under an FSS contract;
  

• An opportunity for an unsuccessful offeror to obtain from the Contracting Officer a brief explanation of the basis for an award decision, when an agency awards an FSS order using a statement of work and award is based on factors other than price;
  

• Guidance on the use of Government-wide BPAs;
  

• Guidance regarding the approvals and documentation required when an agency issues an FSS order for services on a sole source basis;
  

• Clarification that competition, prior to the award of an FSS order, is to be limited to holders of the applicable FSS contracts; and
  

• A provision permitting the performance period of a BPA established under the FSS program to extend into the option periods of the underlying FSS contract.

Many of these changes are highlighted below.

Pricing Supplies and Services Under the Federal Supply Schedule Program

The new regulations leave in place the rule that a Contracting Officer need not perform, prior to the award of an FSS order, analysis of prices set forth in an FSS contract to determine whether such prices are fair and reasonable.  Such analysis is unnecessary because the General Services Administration determined such prices to be fair and reasonable prior to the award of the FSS contract.

The newly issued provisions of FAR Subpart 8.4 specifically remind and encourage Contracting Officers to seek price reductions from FSS contractors when awarding orders under FSS contracts.  Undoubtedly, this will increase pressure on FSS contractors to provide even greater discounts than those offered in their FSS contracts.

Procedural Requirements for FSS Procurements of Supplies or Services

The new regulations clarify that when establishing a BPA or placing an order under an FSS contract for supplies or services, an ordering activity is not required to seek competition from vendors that do not hold the applicable FSS contract or synopsize agency procurement requirements.  In addition, the new rules clarify that a Contracting Officer placing an order under an FSS contract must comply with applicable agency regulatory and statutory provisions.  

Under the new regulations, a Contracting Officer may still place orders at or below the micro-purchase threshold ($2,500) for supplies and services that do not require a statement of work ("SOW") with any FSS contractor that is capable of meeting the agency’s needs.  Revisions to FAR Subpart 8.4, however, now encourage ordering activities to award FSS orders to a variety of FSS contractors, rather than award all such orders to one or a few FSS contractors.

Under the new regulations, a Contracting Officer continues to be required to place orders exceeding the micro-purchase threshold when no SOW is utilized with the FSS contractor that can provide the best value to the government.  The new regulations, however, clarify and add certain factors that are to be considered when determining best value.  Those factors include, in addition to price, past performance, special features of the supply or service required for effective program performance, trade-in considerations, probable life of the item selected as compared with that of a comparable item, warranty considerations, maintenance availability, environmental consideration and delivery terms.

Procedural Requirements for FSS Procurements of Services To Be Obtained on an Hourly Basis

Prior to the new regulations, the FAR did not set forth express procedures for the procurement of services under an FSS contract of services based on hourly rates.  New procedures are now set forth in FAR 8.405-2.  In accordance with these new procedures, a Contracting Officer may procure services valued under the micro-purchase threshold ($2,500) from any FSS contractor that meets the agency's needs.  A Contracting Officer must, however, prepare a request for quotation ("RFQ") when procuring services that require a SOW.  Further, a Contracting Officer cannot orally place FSS orders for services requiring a SOW.

Moreover, where the order value exceeds the micro-purchase threshold ($2,500), but is below the maximum ordering threshold in the FSS contract, the Contracting Officer is required to provide the RFQ to at least three FSS contractors.  For procurements that exceed the maximum ordering threshold in the FSS contract, the Contracting Officer must provide the RFQ to an additional number of schedule contractors and seek price reductions.  In evaluating a response to an RFQ, the Contracting Officer is required to place the order with the FSS contractor that represents the best value to the government.  In addition, the ordering activity is required to consider the proposed level of effort and labor mix to perform the required task and to determine whether the total price is reasonable.

After award of an order for services based on hourly rates, ordering activities are to provide timely notification of the award to unsuccessful offerors.  If an unsuccessful offeror requests information on an award that was based on factors other than price alone, a brief explanation of the award decision is to be provided.

Blanket Purchase Agreements

The new regulations clarify that, pursuant to FAR Subpart 8.4, a Contracting Officer may establish BPAs with one or more FSS contractors to fill repetitive needs for supplies or services.  BPAs are comprehensive contracts that address the frequency of ordering, invoicing, discounts, requirements, delivery locations, and time.  The new regulations recognize that it is unnecessary to require each user agency of a BPA to execute the BPA.

The new regulations require agencies to establish an overall procurement strategy to maximize the effectiveness of BPAs.  Moreover, the new regulations set forth factors that are to be considered when determining the number of BPAs to award with regard to a particular agency need.  These factors include: 1) the scope and complexity of the requirement; 2) the need periodically to compare multiple technical approaches or prices; 3) the administrative costs of the BPAs; and 4) the technical qualifications of the FSS contractor under consideration for the award of a BPA.

The new regulations counsel that BPAs should not exceed five years in duration, but may do so to meet specific program requirements.  BPAs may extend beyond the current term of the applicable FSS contract so long as there are option periods remaining on the FSS contract that, if exercised, will cover the BPA's period of performance.  The agency that establishes a BPA is required to review it at least annually to determine whether the FSS contract, pursuant to which the BPA was established, is still in effect, whether the BPA still represents the best value, and whether estimated quantities have been exceeded or if additional price reductions can be obtained.

Under the new regulations, if the ordering activity has established multiple BPAs, and the order will exceed the micro-purchase threshold ($2,500), before placing the order, the ordering activity is required to provide the requirement, or SOW, and the evaluation criteria, to an appropriate number of BPA holders, evaluate the responses received, make a best value determination and place the order with the BPA holder that represents the best value.

Under the new regulations, when a BPA is for hourly rate services, the ordering activity is required to develop a SOW for requirements covered by the BPA.  In addition, all orders under the BPA must specify a price for the performance of the tasks identified in the SOW.

Inspection and Acceptance

The revised regulations clarify that, unless otherwise provided in the FSS contract, acceptance is conclusive, except with regard to latent defects, fraud, or such gross mistakes as amount to fraud.

In addition, the ordering activity has the right to inspect all services in accordance with the FSS contract requirements and as called for by the order.

If a contractor delivers a supply or service that does not conform to the order requirements, the ordering activity is to take appropriate action in accordance with the provisions of the FSS contract and the order.  If the contractor fails to perform an order, or take appropriate corrective action, the ordering activity may terminate the order for cause or modify the order to establish a new delivery date.

Sole Source Orders

Orders placed under FSS contracts are exempt from the FAR competition requirements in FAR Part 6.  However, the revised regulations clarify that ordering activities should procure sole source requirements under the FSS program only if the need to do so is justified in writing and approved at the requisite levels within the agency.  For example, for a proposed order exceeding $500,000, but not exceeding $10 million, the competition advocate for the procuring activity, or a specified agency official (as defined in FAR 6.304(a)(3) or (a)(4), must approve the justification.

Guidance on the Award of Time-and-Materials and Labor Hour Basis under FSS Contracts.

In the comments to the new regulations, the government recognized that the new regulations fail to address fully whether an order under an FSS contract can be issued on a time-and-materials or labor-hour basis or the circumstances under which such an order would be appropriate.

Currently, the government is working to amend the FAR to implement various sections of the Services Acquisition Reform Act of 2003.  The resulting changes to the FAR are expected to address the use of time-and-materials and labor-hour contracts for commercial services on a time-and-materials or labor-hour basis under the FSS program.

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