Legal Insights: The Clean Contracting Act of 2008
Fall 2008

On October 14, 2008, President George W. Bush signed into law the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009. In what may be a foreshadowing of increased oversight of federal contracting by the new Congress and incoming administration, the Act contains several provisions aimed at increasing competition and exercising greater control of contractors. Subtitle G of the Act is known as the “Clean Contracting Act of 2008.” Many of the requirements in this subtitle first appeared in Representative Henry Waxman’s (D-Calif.) bill of the same name.

The provisions of the Clean Contracting Act include the following:

Noncompetitive Contracts
Section 862 of the Act imposes a limit on the length of certain noncompetitive contracts. The term of a contract that is procured by an agency using other than competitive procedures where only one source or one practical source is available may not exceed the time necessary to meet the unusual and compelling requirements of the work. As soon as these unusual requirements are addressed, the agency is expected to enter into another contract for the required goods or services through use of competitive procedures. The length of a noncompetitive contract may not exceed one year unless the agency determines that exceptional circumstances apply.

Cost-Reimbursement Contracts
Section 864 of the Act imposes limitations on the use of cost-reimbursement contracts. The FAR is required to be revised to include guidance regarding (1) when and under what circumstances cost-reimbursement contracts are appropriate; (2) the acquisition plan findings necessary to support a decision to use cost-reimbursement contracts; and (3) the acquisition work force resources necessary to award and manage cost-reimbursement contracts.

Interagency Contracts
Section 865 of the Act seeks to prevent abuse of interagency contracts. The Office of Management and Budget (OMB) is instructed to submit to Congress a comprehensive report on interagency acquisitions, including frequency of use, management controls, cost-effectiveness and savings generated. The OMB also must issue guidelines to assist agencies in improving management of interagency acquisitions. These guidelines shall include procedures for use of interagency acquisitions to maximize competition, deliver best value to agencies and minimize waste, fraud and abuse. In addition, they shall identify categories of contracts inappropriate for interagency acquisition. The FAR is to be revised to require that all interagency acquisitions include (1) a written agreement between the requesting agency and the servicing agency assigning responsibility for administration and management of the contract; (2) a determination that an interagency acquisition is the best procurement alternative; and (3) sufficient documentation to ensure an adequate audit.

Tiering of Subcontractors
Section 866 of the Act requires the FAR be amended to minimize the excessive use by contractors of subcontractors, or tiers of subcontractors, that add no or negligible value and to ensure that neither a contractor nor a subcontractor receives indirect costs or profit on work performed by a lower-tier subcontractor to which the higher-tier contractor or subcontractor adds no or negligible value. This section applies to any cost-reimbursement type contract or task or delivery order in an amount greater than the simplified acquisition threshold. The Department of Defense is already subject to similar requirements.

Incentive Fees
Section 867 of the Act requires the FAR be amended to better oversee award of incentive fees. Agencies other than DOD must ( 1 ) ensure that all new contracts using incentive fees link such fees to acquisition outcomes; ( 2 ) establish standards for identifying the appropriate level of officials authorized to approve the use of incentive fees; (3) establish standards for determining the percentage of the available incentive fee, if any, which contractors should be paid for performance judged to be, e.g., “excellent,” “superior,” “acceptable,” or “satisfactory;” and (4) ensure that no incentive fee is paid for contractor performance that is judged below satisfactory performance.

Commercial Services Items
Section 868 of the Act seeks to minimize abuse of commercial services item authority. The FAR will be amended to recite that services that are not offered and sold competitively in substantial quantities in the commercial marketplace, but are of a type offered and sold competitively in substantial quantities in the commercial marketplace, may be treated as commercial items only if the contracting officer determines in writing that the offer or has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price for such services. The contracting officer will be given authority to request offerors to submit the pricing information necessary to perform these evaluations.

Database
Section 872 of the Act requires the OMB to establish and maintain a database of information regarding the integrity and performance of certain persons awarded federal contracts and grants. The database shall cover adverse results realized over the past five years by prospective contractors in criminal, civil and administrative proceedings. The database shall be made available to federal agencies. Before awarding a contract or grant in excess of the simplified acquisition threshold, agencies shall review the database and consider all information in the database with regard to any offer or proposal.

What Next?
In light of campaign rhetoric this fall about alleged abuses in federal contracting, the Clean Contracting Act is likely only the beginning of new legislation aimed at curbing such practices. Contractors doing business with the federal government must be prepared for a more competitive and regulated environment.

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