Infotech and the Law: New rules raise procurement thresholds

Eliza Nagle

Contractors soon may need to change the cost and pricing data they supply on government contracts as a result of several recent proposed and interim rules that would increase certain procurement thresholds. For many contractors, the most significant impact of these rules relates to the micropurchase, cost and pricing data, cost accounting standards (CAS) and Trade Agreements Act thresholds.

Thresholds define limits of the monetary value of a contract, subcontract or modification, and trigger compliance with specific statutory and regulatory requirements.

For example, contractors are not required to furnish certified cost or pricing data unless the contract or subcontract exceeds a certain value. The proposed rule would change the value threshold from $550,000 to $600,000, so a contractor need not provide certified cost or pricing data for a deal valued at less than $600,000.

The proposed rule also would change the micropurchase threshold from $2,500 to $3,000. The micropurchase threshold is significant, because procurements valued at less than $3,000 generally will be exempt from many standard procurement requirements, including competition and audits.

The proposed rules also change thresholds of CAS requirements, including those governing a company's cost accounting practices. CAS thresholds also govern when CAS covers a contract and when a business must adhere to modified coverage instead.

It should be noted that determining when CAS requirements apply to a company or contract involves complex analyses. As a result, this column can offer only an oversimplified discussion of these requirements and their new triggering thresholds.

Negotiated contracts and subcontracts are exempt from CAS requirements when their value is less than $500,000. The proposed rule would exempt contracts and subcontracts that have a value of less than $550,000.

Earlier thresholds applied CAS to contracts worth more than $500,000 when a contractor had received one negotiated contract valued at $7.5 million or more. The proposed rule would apply CAS to negotiated contracts worth more than $550,000 after a contractor had negotiated a deal valued at $8.5 million or more.

Whether or not a company is subject to full CAS coverage is determined by yet another threshold. The proposed rule would increase the threshold for full CAS coverage from $50 million to $56.5 million. Thus, companies awarded more than $56 million in CAS-covered prime and subcontracts in the previous fiscal year would be subject to full CAS.

Finally, companies concerned about Trade Agreements Act coverage should be aware of new thresholds issued by the U.S. Trade Representative and effective since Jan. 5. They affect products coming from World Trade Organization countries, as well as from Australia, Chile, Mexico and Singapore, which are Free Trade Agreement countries.

The new rule would let the government buy World Trade Organization country products only when the contract is worth more than $193,000, and products from Australia, Chile, Mexico and Singapore only when the contract is worth more than $64,786.

The proposed and interim rules change several significant thresholds that affect the obligations of companies engaging in government procurements. Although several of these are still in the proposed stage, final rules should be issued soon. Stay informed on these developing rules and modify your business strategies accordingly.


Eliza Nagle is an associate in the Government Contracts practice of DLA Piper Rudnick Gray Cary US LLP in Washington. Her e-mail address is eliza.nagle@dlapiper.com.

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