Federal Acquisition Regulation; Service Contracts Reporting Requirements

AGENCY:

Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement section 743 of Division C of the Consolidated Appropriations Act, 2010. This proposed rule amends the FAR to require service contractors for executive agencies, except the Department of Defense (DoD), covered by the Federal Activities Inventory Reform (FAIR) Act of 1998, to submit information annually in support of agency-level inventories for service contracts.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat at one of the addresses shown below on or before June 20, 2011 to be considered in the formation of a final rule.

ADDRESSES:

Submit comments in response to FAR Case 2010-010, by any of the following methods:

• Regulations.gov: http://www.regulations.gov.

Submit comments via the Federal eRulemaking portal by inputting “FAR Case 2010-010” under the heading “Enter Keyword or ID and selecting “Search”. Select the link “Submit a Comment” that corresponds with FAR Case 2010-010 at the “Submit a Comment” screen. Please include your name, company name (if any), and “FAR Case 2010-010” on your attached document.

• Fax: 202-501-4067.
• Mail: General Services Administration, FAR Secretariat (MVCB), ATTN: Hada Flowers, 1275 First Street, NE., Washington, DC 20405.

Instructions: Please submit comments only and cite FAR Case 2010-010, in all correspondence related to this case. All comments received will be posted without change to http://www.regulations.gov,, including any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT:

Ms. Clare McFadden, Procurement Analyst, at (202) 501-0044 for clarification of content. Please cite FAR Case 2010-010. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at (202) 501-4755.

SUPPLEMENTARY INFORMATION:

I. Background

Section 743 of Division C of the Consolidated Appropriations Act, 2010 (Pub. L. 111-117) requires executive agencies covered by the Federal Activities Inventory Reform (FAIR) Act (Pub. L. 105-270), except DoD, to submit to the Office of Management and Budget (OMB) annually an inventory of activities performed by service contractors. DoD is exempt from this reporting requirement because 10 U.S.C. 2462 and 10 U.S.C. 2330a(c) already requires DoD to develop an annual service contract inventory.

House Report 111-366 notes, in connection with section 743, that, “(i)n the absence of complete and reliable information on the extent of their reliance on service contractors, Federal agencies are not well-equipped to determine whether they have the right balance of contractor and in-house resources needed to accomplish their missions. This section requires agencies to review the contents of the inventory and report on actions taken.”f

Section 743 mandates that, for each service contract, the agency-level inventory report must include the following information—

(1) A description of the services purchased by the executive agency and the role the services played in achieving objectives, regardless of whether such a purchase was made through a contract or task order;

(2) The organizational component of the executive agency administering the contract, and the organizational component of the agency whose requirements are being met through contractor performance of the service;

(3) The total dollar amount obligated for services under the contract and the funding source for the contract;

(4) The total dollar amount invoiced for services under the contract;

(5) The contract type and date of award;

(6) The name of the contractor and place of performance;

(7) The number and work location of contractor and subcontractor employees, expressed as full-time equivalents for direct labor, compensated under the contract;

(8) Whether the contract is a personal services contract; and

(9) Whether the contract was awarded on a noncompetitive basis, regardless of date of award.

Additionally, the Office of Federal Procurement Policy's November 5, 2010, guidance, entitled Service Contract Inventories ( http://www.whitehouse.gov/omb/procurement_index_memo ), requires agencies to include contract actions funded by that agency, including contract actions made on behalf of the agency by other agencies. Similarly, agencies should exclude contract actions that they have made on another agency's behalf with the other agency's funding. This guidance provided a framework to help agencies prepare service contract inventories for Fiscal Year (FY) 2010. To maximize the management benefits associated with a service contract inventory and ensure consistency across agencies, FY 2010 inventories followed the format provided in the guidance and included only the data elements identified in section 743(a)(3) that are currently reported in the Federal Procurement Data System—Next Generation (FPDS-NG). However, certain data elements, namely the total amount invoiced for services and number of direct labor hours expended on services performed during the previous Government fiscal year, which will be used to calculate the number of contractor manpower full-time equivalents, must be collected from service contractors.

The service contractor inventory requirements in section 743 create significant management responsibilities to support the appropriate rebalancing of work performed by Federal employees and contractors. To implement this requirement in the FAR, OMB directed DoD, GSA, and NASA to use a phased-in approach similar to that proposed in the President's Budget for FY 2011. A phased-in approach will help agencies more effectively manage the challenges associated with launching and maintaining an inventory.

In accordance with Section 743, this rule proposes to amend the FAR to create a new FAR subpart 4.16, entitled Service Contracts Inventory, to address responsibilities for collection, management, and reporting of this information, and a new clause, 52.204-XX, Service Contract Reporting Requirements, to incorporate into covered solicitations and contracts. An Alternate clause will be used for orders placed on indefinite-delivery contracts.

Agencies placing orders on these existing contracts after the effective date of a resulting final rule will be required to report this information if the order meets the thresholds established in FAR 4.1603 (e.g., at or above the simplified acquisition threshold (SAT) for cost-reimbursement, time-and-materials, and labor-hour contracts, and fixed-price contracts at or above $5 million in FY 2011 and phased-in thresholds thereafter).

Under this proposed rule, contractors must submit the following four data elements for each covered contract or order for a given year by October 31st annually:

(1) Contract number and, as applicable, task order number.

(2) The total dollar amount invoiced for services performed during the previous fiscal year under the contract.

(3) The number of contractor direct labor hours expended on the services performed during the previous fiscal year.

(4) Data reported by subcontractors.

Subcontractor information is also required under Section 743. To implement this requirement in the FAR, in a manner that is least burdensome, OMB directed collection of this information from first-tier subcontractors (similar to the subcontractor reporting requirement in FAR subpart 4.14, Reporting Executive Compensation and First-Tier Subcontract Awards). Prime contractors would be required to obtain from each first-tier subcontractor performing under a covered contract the following information by October 15th annually:

(1) Subcontract number (including subcontractor name, and, if available, Data Universal Numbering System (DUNS) number associated with the subcontract number).

(2) Number of first-tier subcontractor direct-labor hours expended on services performed during the previous Government fiscal year.

The proposed reporting requirement applies only to solicitations, contracts, and orders for services, to first-tier subcontracts at or above the established thresholds.

II. Executive Orders 13563 and 12866

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

III. Regulatory Flexibility Act

The change may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because this new requirement does impose some additional requirements on small businesses that provide services to Executive agencies, other than DoD.

An Initial Regulatory Flexibility Analysis (IRFA) has been prepared. The analysis is summarized as follows:

The statute requires agencies covered by the FAIR Act, except DoD, to submit annual agency inventories of their service contracts. The inventory must address nine data items for each service contract (see “I. Background”). DoD, GSA, and NASA attempted to minimize the information-collection requirement for contractors by requiring agencies to obtain as much of the data as possible from existing sources such as the Federal Procurement Data System (FPDS). For each service contract or order, contractors would be expected to report annually—

(1) Contract number and, as applicable, task order number;

(2) The total dollar amount invoiced for services performed during the previous Government fiscal year under the contract;

(3) The number of contractor direct labor hours expended on the services performed during the previous Government fiscal year; and

(4) Data reported by first-tier subcontractors.

Consistent with the thresholds for prime contracts, first-tier subcontractors with subcontracts valued at or above the thresholds established for new contracts (e.g., $5 million for new fixed-price contracts in FY 2011 and at or above the simplified acquisition threshold for cost-reimbursement, time-and-materials, and labor-hour contracts) would be expected to report the following data elements to the prime contractor by October 15th annually:

(1) Subcontract number (including the subcontractor name and if available, the DUNS number).

(2) Number of first-tier subcontractor direct labor hours expended on services performed during the previous Government fiscal year.

To further minimize the impact, OMB elected to implement the contractor reporting requirements over a period of four years beginning with larger dollar obligations for new fixed-price contracts (i.e., $5 million for FY 2011) that goes down to a $500,000 contract reporting threshold for FY 2014. A lower threshold was selected for cost-reimbursement, time-and-materials, and labor-hour contracts (i.e., at or above the SAT) because contractors already track the required information to invoice the Government.

The reporting requirement would apply to Government contractors, other than DoD contractors, that supply services to executive agencies during a Government fiscal year (beginning in FY 2011) and over the specified reporting thresholds.

Each contractor would be required to report annually on the services provided during the previous Government fiscal year. The information would be input to a new Service Contract Reporting Portal (currently under development). This information will be collected through this portal, and no hard-copy reporting is required. When providing a proper invoice to the Government for cost-reimbursement, time-and-materials, and labor-hour contracts, the information on the number of direct labor hours worked is already compiled by contractors, so the information collected should be minimal for these types of contracts. The direct costs to small business firms to comply with this rule are primarily for data collection and input associated with the single annual report.

To minimize the burden on small businesses, the following alternatives were considered and included in the proposed FAR rule:

• Minimizing the inventory data elements collected by using existing systems, such as FPDS.
• Minimizing the reporting to once a year.
• Enabling electronic reporting by the contractor into the new portal.
• Requiring contractors to provide only the number of direct labor hours and developing the system to automatically generate the number of full-time equivalents.
• Limiting the reporting requirement to first-tier subcontractors for services in lieu of all subcontractors.
• Establishing a phased-in approach based on contract type and estimated total dollar amount, from 2011 to 2014 based on thresholds, to minimize the collection of information.

The Regulatory Secretariat will be submitting a copy of the Initial Regulatory Flexibility Analysis (IRFA) to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat. The Councils invite comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

DoD, GSA, and NASA will also consider comments from small entities concerning the affected regulations in subparts affected by this rule in accordance with 5 U.S.C. 610. Comments must be submitted separately and should cite 5 U.S.C. 601, et seq. (FAR Case 2010-010) in all correspondence.

IV. Paperwork Reduction Act

The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies because the proposed rule contains information collection requirements. Accordingly, the Regulatory Secretariat has submitted a request for approval of a new information collection requirement: 9000-0179, Service Contractor Reporting Requirements, FAR Case 2010-010, Proposed Rule, to the Office of Management and Budget.

Annual Reporting Burden:

Public reporting burden for this collection of information is estimated to average 2 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Because this is a new information collection requirement, historical data is not available. Further, the ceiling amount for certain service contracts to include the reporting requirement will be phased in over several years. Data from FY 2009 was used to determine the burden, with the most recent year for which data is available used as a baseline for the number of affected service contracts. DOD awards were excluded.

If this reporting requirement had been in place during FY 2009, it would have covered 17,120 fixed-price service contracts over $5 million and 6,725 cost-reimbursement, time-and-materials, and labor-hour service contracts above the simplified acquisition threshold. Therefore, the total number of contracts on which reports would have been submitted is 23,845. Only one report is required for each contract annually, and we estimate that it will take approximately 2 hours to prepare and submit the report. The annual reporting burden is estimated as follows:

List of Subjects in 48 CFR Parts 4, 8, 17, 37, and 52

• Government procurement

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 4, 8, 17, 37, and 52 as set forth below:

1. The authority citation for 48 CFR parts 4, 8, 17, 37, and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).

PART 4—ADMINISTRATIVE MATTERS

2. Add subpart 4.16 to read as follows:

Subpart 4.16—Service Contracts Inventory

PART 8—REQUIRED SOURCES OF SUPPLIES AND SERVICES

3. Amend section 8.404 by adding paragraph (f) to read as follows:

PART 17—SPECIAL CONTRACTING METHODS

4. Revise section 17.504 to read as follows:

PART 37—SERVICE CONTRACTING

5. Amend 37.103 by adding paragraph (e) to read as follows:

PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

6. Add section 52.204-XX to read as follows: