Federal Contract Compliance – Commercial Items February 10, 2011 Midwest SBLO Meeting

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Federal Contract Compliance –

Commercial Items

February 10, 2011

Midwest SBLO Meeting

Introduction

Presented by

Ray Suennen

Governmental Contracts

Compliance Coordinator

Integrys Energy Services, Inc

[email protected]

Federal Regulations

This presentation is focused on compliance

with Federal contract requirements for

commercial items

and

subcontracting plan technical issues

FAR parts #s and clauses #s are identified for reference purposes

Definitions

Commercial Item FAR 2.101

1) Any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and has been sold, leased, or licensed to the general public; or has been offered for sale, lease, or license to the general public

Definitions

Commercial Item

2)Any item that has evolved from an item in # 1 through advances in technology or performance ……

3)Any item in # 1 & 2 with commercially available modifications or minor modifications ......

4)Any combinations of #s 1. 2 & 3 that are available to the general public ……

Definitions

Commercial Item

5)Services such as installation, maintenance, repair, training & others for support of an item in #s 1-4 that the general public is provided…

6)Services competitively offered commercially based on catalog or market prices …..

Examples include electricity, a welder, an automobile,, drywall, a toothbrush, cabinets, cabinet installation …….

Federal Regulations

Commercial Plan

A commercial plan is the preferred type of subcontracting plan for contractors furnishing commercial items.

FAR 52.219-9 (g)

Federal Regulations

Commercial Plan

- Covers the offeror’s fiscal year- Applies to the entire production of commercial

items sold - Includes the entire company or a portion

thereof (division, plant or product line)

19.701

Federal Regulations

Commercial Plan & Indirect Costs

- May include a proportionate share of indirect costs 52.219-9(d)(1)

- Total value of projected subcontracts to support the sales 52.219-9(d)(2)

Company wide plans include

all indirect costs

Federal Regulations

Commercial Plan

- Includes offeror’s planned subcontracting for both commercial and Governmental business

- One plan in effect at a time- One Contracting Officer approves

52.219-9 (g)

Federal Regulations

Subcontracting Plan Requirements

Negotiated Acquisition 15.000

1) Is amount is expected to exceed $ 650,000 for non-construction, or$1.5 million for construction; and

2) Do subcontracting possibilities exist

The selected offeror must negotiate an acceptable subcontracting plan with Contracting Officer 19.702

Federal Regulations

Subcontracting Plan Requirements

Sealed Bid Acquisition 6.401 & 14.101

1) Is amount is expected to exceed $ 650,000 for non-construction, or$1.5 million for construction; and

2) Do subcontracting possibilities exist

The selected offeror must submit a subcontracting plan to the Contracting Officer

19.702

Federal Regulations

Subcontracting Plan Exceptions

Not Required1) From small business concerns

2) For personal service contracts

3) When performance entirely outside of the US and its outlying areas

19.702

Federal Regulations

Commercial Plan Reports

- Subcontracting Plans are due 30 working days before the end of fiscal year 19.704(d)

Once approved, submit to the non-primary Contracting Officers 19.704(d)

- Summary Subcontracting Reports (SSR), due 30 days after the close of the reporting period

19.704(a)(10)- Yr-End Supplementary Rprt - SDB due 90 days

after submitting Y/E SSR 52.219-9(L)(2)(iii)

Federal Regulations

Commercial Items

Certain laws are not applicable to or are modified for subcontracts at any tier for the acquisition of commercial items or components

FAR 12.504

This is a significant factor in determining the applicable regulations and reporting requirements

Federal Regulations

Commercial Items

Two very important clauses

52.212-5 Contract Terms and Conditions Required to Implement Statutes or Executive Orders-Commercial Items

Is required in contracts when the Government purchases a commercial item from a Prime Contractor FAR 12.301(b)(4)

Federal Regulations

Commercial Items

Two very important clauses

52.244-6 Subcontracts for Commercial Items

Is required to be included in Federal contracts with the Prime Contractor for non-commercial items and applies to subcontracts at all tiers (flow down clause)

FAR 44.403(a)

Federal Regulations

Commercial Items

“To the maximum extent practicable, the Contractor shall incorporate, and require its subcontractors at all tiers to incorporate commercial items or nondevelopmental items as components of items to be supplied under this contract.”

FAR 52.244-6

Federal Regulations

Commercial Items

Why does the Government want to use commercial items?

- should be less expensive(avoid developmental costs)

- shorter time frame to obtain (avoid the development time period)

- supply of product exists(manufacturing facilities exist)

- market prices already exist (competitive)

Federal Regulations

Federal Compliance Requirements

There are two independent sources that require compliance with the Federal Government’s Contract Terms and Conditions

1)Selling directly to the Federal Government

2)Selling to Federal Government Contractors or Subcontractors

Federal Regulations

Federal Compliance Requirements

1) The Federal Government includes the Federal Acquisition Regulations (FAR) clauses in their contracts with the Prime contractor

2) Your suppliers, who are Prime Contractors (or subcontractors of Primes) include the Federal Contract Requirements in their Terms and Conditions in their subcontracts with your company

Federal Regulations

Federal contracting involves

- Compliance with the FAR Terms & Conditions FAR Clauses

Additional business requirements for

Socioeconomic Commitment

- Small Business Subcontracting Program

Supplier Diversity Program

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Federal Regulations

Federal contracting requires

- Adhering to specific requirements focused

on purchasing (Socioeconomic)- Collecting additional data (certify size & type)

- Additional record keeping (status,dates,NAICS)- Maintenance of records (current/accurate)- Specific reporting (small bus & diverse supplier)

- Compliance reviews/audits (Subcontracting Program)

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Small Business Administration

Socioeconomic Program

The need to provide opportunities to- Diverse Suppliers (Preferential Suppliers)

DisadvantagedWomenVeterans & Service-Disabled Veterans (those who

have served and sacrificed for our country)Economically Deprived Areas - All Small Businesses (“SB”)

Definition - Small Business

A Small Businesses (SB)

1) Is organized for a profit Excludes

Non-profit organizationsGovernmental agencies

2) Must have a place of business in the US (an office or plant)

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A Small Business

3) Operates primarily within the US or makes a significant contribution to the US economy (pays US income taxes / uses American

products/labor)FAR 19.001 “Concern”

Note - some foreign companies located in the U.S. are a “Large Business” due to the overall size of their parent company and subs

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A Small Business FAR 19.102(b)(1)

4)Does not exceed the size standard for its industry. Size standards are determined by NAICS code by each product or service

NAICS – North American Industry Classification System code

It is possible to be a Small Business for one NAICS code and a Large Business for another NAICS code

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Size Standards – NAICS Codes

Methods used to Determine Size of Business

1) Employees Average number over last 12 months

2) Revenues Average for last three years

3) Specific industries (many listed) Electricity – 4 M mega watt hours

sold in prior year 19.102

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To Determine the Size of a Business

Include employees/revenues/MWhs from

- All companies of common ownership

- Foreign affiliates

- Not-for-profit affiliates

- All companies of common interest Joint ventures – 2 methods

Spouses business - FAR 19-101(2)


To Determine the Size of a Business

Common Ownership includes all affiliates

- Business in question

- All subsidiaries

- Parent company

- All sister companies

(must consider control – 19.101)


What is a Large Business?

Simply - everything that does not qualify as a small business

- Government agencies

- Non-profit organizations

- Foreign companies (non-taxpayers)

- Businesses that exceed the Small

Business Size Standards

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Small Business Certifications

Contractors acting in good faith may rely on written representations by their subcontractors regarding their status as SB, SDB, WOSB, VOSB, SDVOSB or HUBZone Business concern 52.219-8(d)

The Year-End Supplemental Report for Small Disadvantaged Business spend on eSRS requires NAICS codes

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Size Standards - NAICS Codes

To cross reference SIC to NAICS codes, and to lookup NAICS codes use website -

http://www.naics.com/search.htm

A complete NAICS code listing is at – http://www.sba.gov/contractingopportunities /officials/size/table/index.html

Then select PDF format

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Definitions

FAR Clauses

- The Terms and Conditions of the Federal Government as written in the Federal Acquisition Regulations (FAR) which implement the purchasing laws and executive orders of the U.S. Government

(Code of Federal Regulations “CFR”)- FAR Clauses all start with “52.2”

- Includes both Flow Down Clauses and clauses that do not flow down

Definitions

FAR Flow Down Clauses

Terms and Conditions that originate when a business has a contract with the Federal Government (called a Prime Contractor)

The Flow Down T&C are to be included in the Prime Contractor’s subcontracts to its suppliers (called First-Tier subcontractors)

Most Flow Down T&C are to be included in First-Tier subcontracts to their suppliers (Lower Tier subcontractors)

Definitions

Incorporate by Reference 52.103

When a FAR Clause is included in the Terms and Conditions only by identifying its FAR number, title and date, it has the same meaning and effect as if it was listed in full text within the document

e.g. 52.222-26 Equal Opportunity (Mar 2007)

Used in Federal contracts and may be used with Flow Down Clauses in subcontracts

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Definitions

Contract 2.101

A mutually binding legal relationship obligating a seller to furnish the supplies or services … and the buyer to pay for them

Includes, but is not limited to, bilateral instruments and purchase orders which become effective by written acceptance or performance

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Definitions

Contracting 2.101

“Purchasing, renting, leasing, or otherwise obtaining supplies and services from non-federal sources”

Relate these definitions to taxes

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Subcontract

“Any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract”

52.203-13(a)

Any agreement … entered into … for supplies or services required for the performance of the contract or subcontract 52.219-9(b)

Definitions

Subcontract (Direct Costs)

“Also includes a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or a subcontractor” 15.401

“Includes a transfer of commercial items between divisions, subsidiaries, or affiliates of the contractor or subcontractor at any tier”

52.244-6

Definitions

Subcontracting or Spend

All purchases/acquisitions/expenditures/ commitments for operations & capital

Acquisitions from all sources, unless specifically excluded

Report Spend (not revenues or net income)

to the Agency that you sold to (not IRS)

Definitions

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Definitions

Subcontracting/Spend – excluded items

- Payroll - includes deferred comp-401K employee/employer relationship 52.219-9(a)

- Taxes - all types – government collects, do not enter into a subcontract to pay taxes and is not for supplies or services 52.219-9(a)

- Inter-company charges, shared services and allocations from affiliated companies (indirect costs) 52.219-9(L)

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DefinitionsSpend/Subcontracting – excluded items

- Depreciations/amortization – not current period subcontracts - prior expenditures, not “entered into in period” 52.219-9(a)

- Offsets to revenues - rebates, refunds, uncollectable accounts/bad debts does not involve the purchasing of supplies or services for the performance of the subcontract

52.219-9(a)

- Non-U.S. operations

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Federal Regulations

Commercial Items – Flow Down Clauses

FAR 52.212-5 (e)(1) and 52.244-6 (c)(1) specifically identify the only FAR Clauses that are required to be flowed down to subcontractors

Even some of the identified flow down clauses are exempted based upon other FAR Clauses

Terms & Conditions – FAR Flow Down Clauses

FAR FLOW DOWN CLAUSES

To comply with the terms and conditions of the Federal requirements, a firm can posted the applicable FAR Flow Down Clauses on their website.

The link must contains the FAR Clause #, the FAR Clause Title, and the effective date.

The address of the Federal Government’s website should also posted, which is where the FAR Clauses in full text are located


FAR Flow Down Clauses Verbiage

All subcontracts and solicitations for goods and services for the Contractor (or subcontractor) and all of its subsidiaries must contain reference verbiage to the FAR Flow Down Clauses

Federal Acquisition Regulations (“FAR”); The FAR Clauses listed at

http://www.companyname.com/supplier.aspx are incorporated by reference, as applicable.


FAR Clauses in Full Text

The FAR Clauses in full text are located on the Federal Government’s website at https://www.acquisition.gov/Far/loadmainre.html

The FAR Flow Down Clauses per our commercial contracts are as follows:


FAR Flow Down Clause Numbers & Titles

52.222-21 Prohibition of Segregation of Facilities (Feb 1999)52.222-26 Equal Employment Opportunity (May 2007)52.222-35 Equal Opportunity for Special Disabled Veterans,

Veterans of the Vietnam Era, and Other Eligible Veterans (Sep 2006)

52.222-36 Affirmative Action for Workers with Disabilities52.222-50 Combating Trafficking in Persons (Feb 2009)52.203-13 Code of Business Ethics and Conduct (Apr 2010)52.219-8 Utilization of Small Business Concerns (May 2004)52.204-10 Reporting Executive Compensation and First-Tier

Subcontract Awards (Jul 2010)


FAR Clause Responsibilities

52.222-21 (A) Employment law, applies if have 15 or more employees, applies to all subcontracts

52.222-26 (A)52.222-35 Applies when subcontract is $100,000 or

more, promotes fair and equal treatment of veterans for employment opportunities

52.222-36 (A) (Jun 1998)52.222-50 Ethical law relating to buying and selling

of people, commercial sex acts and using forced labor, only violations reported



52.203-13 Applies to subcontracts over $5 million, promotes ethical conduct within business, a written ethical policy, distribute the policy, and ethical training, only violations reported

52.219-8 Applies to subcontracts over $150,000, promotes practices for purchasing from small businesses, and small diverse businesses, no reporting



52.204-10 Applies to subcontracts of $25,000 or more,flows down only TEGE & subs to subcontractor, TEGE reports, information will be made public

Part 1 Provide general information on subcontracts and subcontractors, includes amount of subcontract

Part 2 Provide names & compensation of 5 highest paid executives, need to document exemption reasonMost companies are exempt, since less than 80% of revenue is from Federal sources, those not exempt, will be providing to many companies



Some suppliers may not like these, do we really need to include these FAR Clauses?

FAR 52.222-26 states -“The Contractor shall include the terms and conditions of this clause in every subcontract”…

FAR 2.101 defines “shall”Shall means the imperative.

(absolutely necessary)



If a supplier needs assistance with locating the FAR clauses in full text or would like to generally discuss the clauses or why they are required, assistance may be appropriate

Providing general information may be helpful, but guidance or interpreting what the clauses mean in relationship to their company is the supplier’s responsible.

Federal Regulations

Commercial Items

Exempt required flow down clauses can include

52.222-54 E-verify

COTS exemption 22.1803(c)(1)

52.226-6 Promoting Excess Food Donations 52.226-6(c)

Applies only to subcontractors “who will perform, under this contract, the provision, service, or sale of food in the United States”

Federal Regulations

Commercial Items FAR 12.504

Laws not applicable or modified;

Walsh-Healey Act

Examination of Records of Contractor

Drug-Free Workplace Act

Transportation in American Vessels

Fly American

Cost Accounting Standards

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Socioeconomic Program – Federal Definition

Socioeconomic Programs

Purchases from (Spend to)

- Diverse Suppliers (preferential suppliers must be Small Businesses)

- Other Small Businesses

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Socioeconomic Program – Federal Definitions

Other Small Business (non-diverse) Criteria

1) Must meet the NAICS size standard (must be a small business)

2) Owned by at least 51% by US citizen(s)

3) Daily management and controlled is by

US citizen(s)

4) Owned by any ethnicity or sex

e.g. – could be a 30 year old Caucasian male

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Diverse Supplier (Preferential Suppliers)

A) Are small businesses owned by

Categories Acronym

Women WOS

Disadvantaged Individuals SDB

Veterans VOS

Service-Disabled Veterans SDVOS

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Diverse Suppliers

1- Ownership of the business must be at least 51 percent owned by the specific category.

2- Daily operations must be controlled and managed by the specific category

3- Category owners must be a US citizen

e.g. - A women-owned business must be at least 51% owned and controlled by one or more women.

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Diverse Suppliers

Disadvantaged individuals must be socially and economically disadvantaged, included are

- Minorities (except the wealthy)

- Disabled individuals (if qualified)

- Any other individual if qualified, no matter the ethnicity or sex

- Indian Tribes

- Alaskan Native Corporation60

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Diverse Suppliers - also includes

B) HUBZone Business (HUBZ)

(Historically Under-utilized Business Zone)

1)Located in an economically disadvantaged area

2)At least 35% of its employees live in an economically disadvantaged area

3)Is controlled and at least 51% owned by a US citizen

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HUBZone Business

Is certified by the Small Business Administration (SBA)

Is a Federal Government certification

HUB Business

Is certified by a specific state (TX & NC)

They are not the same. A HUB Business does not meet the Federal standards

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Socioeconomic Program Goals

Federal Goals to Contractors

Diverse Supplier Type % of Spend

Women-owned 5% Disadvantaged 5% Service-Disabled Veteran 3% Hub Zone 3%

Total Diverse Spend 16%

Total Spend to Small Businesses 23%(Diverse & Non-diverse)

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Federal Goals to Contractors

% of Spend

Not specifically identified 7%

Categories for additional Spend

- Veteran-owned (VOSB) 3%++

- WOSB, SDB, SDVOSB & HUBZ

- Other Small Businesses (non-Diverse)

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Socioeconomic Program Goals

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Annual Reporting Requirements

- Small Business Subcontracting Plan

(projections/budget – calendar year)

- Small Business Subcontracting Report

- Year-End Supplemental Report for Small Disadvantaged Businesses

(actual results based on Government’s fiscal year – October 1 - September

30)

The reports summarize the Subcontracting Program65

Subcontracting Program Reporting

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1) Scope of Reports

- Either by the entire company or a portion thereof (division, plant or product line)

FAR 19.701

- Applies to the entire production of commercial items sold FAR 19.701

- Identifies Spend of the - Socioeconomic Program

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2) Company Goals

Subcontract award data reported by prime Contractors and subcontractors shall be limited to awards made to their immediate next-tier subcontractors.

Credit cannot be taken for awards made to lower tier subcontractors, unless the Contractor or subcontractor has been designated to receive a small business or small disadvantaged business credit from an ANC or Indian tribe

FAR 52.219-9 (L)

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2) Company Goals

Purchases from a corporation, company, or subdivision that is an affiliate of the prime Contractor or subcontractor are not included in these reports 52.219-9 (L)

(exception – pass through purchases)

Indirect costs, such as general & administrative, are proportionately included in a commercial plan

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2) Company Goals Example

$ mil . % . Fed%

Total Small Business 150 8.3 23.0

Large Business 1,650 91.7

Total Company 1,800 100.0

Goals are stated in dollar amounts and percents (percents are key)

Small Business includes Diverse Spend

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Subcontracting Plan Reporting

3) Goals for Diverse Spend

$ M . % . Fed %

Women 27 1.5 5.00

Disadvantaged 30 1.7 5.00

Service-Disabled Vet 4 0.2 3.00

Veterans 10 0.5 0.00

HUBZone 9 0.5 3.00

Totals 80 4.4 16.00

Note - Planned goals are less than Federal preferences

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Goals for Diverse Spend

.$ Mil . % . . %

Total Small Business 150 8.3

Total Diverse Suppliers 80++ 4.4 53%

Non-Diverse Small

Business Spend $ 75 ?? 4.2 50% actual

++ Some Diverse Spend may be in more than one category and may be counted multiple times

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Diverse Spending Multiple Credit Reporting

Purchases from a Diverse Supplier that qualifies in multiple diverse categories results in being able to report the actual spend in each of the qualifying diverse categories.

Spending $100 with ABC Company entitles the contractor to take a $100 credit in each category that ABC Company is certified in.

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ABC is a certified women, service disabled, veteran owned company, the reportable spend is

Women $100

Service-disabled veteran $100

Veteran $100

Total Goal Credits $300

Actual Spend $100

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FAR does not directly state the multiple credit process, but requires the use of the eSRS system. In the goals section (2c) on the eSRS system is the following –

Socioeconomic Categories: Each of these items is a subcategory of “Small Business Concerns” and may not add to match the total in “Small Business Concern” due to the following: In some cases the same dollars may be reported in more than one block.

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4) Subcontracting Procedures

Description of policies and procedures that will be used to direct and support the achievement of the Goals and how they comply with the Federal Government’s Acquisition Policy for small businesses

Includes outreach, notification, training, purchasing, documentation & reporting

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Federal Government’s Acquisition Policy

To provide - 19.201

maximum practicable opportunities in its acquisitions to small businesses veteran- owned small businessesservice-disabled veteran-owned SB HUBZone small businesses small disadvantaged businesseswomen-owned small businesses

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Federal Contracting

Contract Award Criteria Weight

A) Company responsibility/technicals 4

B) Past performance 5

Includes Socioeconomic Program 1

(Must meet technical criteria of #A

& B in order to be considered for pricing, evaluation criteria may be 50%)

C) Price 10

(Evaluation criteria may be 50%)

Summary

FAR Clauses and Socioeconomic Program are

- Terms & Conditions

- of the our sales contracts

- flowed down from our suppliers

- To be incorporated into our purchasing

processes

- Promoted through a Supplier Diversity

Program

Summary

Socioeconomic programs are focused on

1) supporting all small businesses

2) supporting small businesses with

social and/or economic barriers (Supplier Diversity)

Summary

The Federal Contracting Process

- Contracts are on the government’s forms

- The government made most of the rules

- The government oversees the rules

- The government enforces the rules

- We have agreed to comply with their rules

What are your

questions

and

comments?

Summary

Federal Contract Compliance – Commercial Items February 10, 2011 Midwest SBLO Meeting

Documents

Transcript of Federal Contract Compliance – Commercial Items February 10, 2011 Midwest SBLO Meeting