Infotech and the law: New DFAR could put whole new spin on procurement

Jonathan Cain

The Defense Department has published amendments to its supplement to the Federal Acquisition Regulation, known as DFAR, as part of its program to transform defense procurements.

Most of the changes are marginal, but the department also is moving many regulations out of DFAR and into a procedures, guidance and information manual, or PGI, that won't have the force of law.

It's difficult to predict the effect of this decision, but it may be the most significant piece of the department's procurement transformation.

According to the Defense Department, after its regulatory transformation is done, DFAR will contain only requirements of law, agencywide policies, delegations of FAR authorities, deviations from FAR requirements and "policies or procedures that have a significant effect" beyond the internal operating procedures of the Defense Department, or a "significant cost or administrative impact on contractors or offerors."

Everything else will be in the PGI manual.

The manual will contain mandatory procedures, nonmandatory internal procedures, and guidance and supplemental information to be used at the contracting officer's discretion.

Procedures, policy and guidance will not be federal rules subject to the Administrative Procedure Act, need not be published for public comment, and can be changed whenever agency officials find it convenient, without notice or justification. It will only be published electronically.

Several illustrations in the current round of DFAR amendments show how broad the department sees the scope of the PGI manual, and how much more flexibility it gives defense officials to change policies without notice or opportunity for public comment.

For example, the new amendments remove the Trade Agreements and the Buy America acts from the list of laws inapplicable to subcontracts for buying commercial items, and make them policy statements to the PGI.

The Defense Department contends it's unnecessary to include these laws, because it hasn't applied the restrictions of either act at the subcontract level.

Although the Buy America Act requires that domestic components exceed 50 percent of an item's cost, the department doesn't require the subcontracts for the components themselves to comply with the act. The domestic components need only to have been manufactured in the United States.

The Defense Department's policy guidance to its procurement officers will state that commercial components do count in the domestic components calculation of an item, and the prime contractor must still comply with the Buy American Act when using commercial components.

Agency policy also will interpret the act as requiring a prime contractor reselling or distributing commercial items of another contractor without adding value to comply with the act.

Another set of rules shifted to PGI manual policy statements are the procedures for waiving the five-year period of debarment for persons convicted of fraud in defense-related contracting.

The department's waivers of the debarment of some significant contractors have raised a number of questions about how fairly the rules are being applied.

The Defense Department's response in this rulemaking is to eliminate at least part of the problem by removing the regulatory constraints on its waiver procedures.

The rule deletes the parts of the DFAR relating to department procedures for waiving the five-year period for prohibitions on persons convicted of fraud or other defense-contract-related felonies, as well as the requirement that any waiver request be referred to designated debarment and suspension officials.

This does not solve the public relations problem for the department, but it will make it easier to justify the legality of a waiver.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

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