Presentation on theme: "Commercial Contracts, FAR and FAR Part 12"— Presentation transcript:
1Commercial Contracts, FAR and FAR Part 12 Mark Pearsall, CPCM, CFCM, CPPS.Date October 6, 2012
2Commercial Item Contracting Options Federal Acquisition Regulation (FAR)FAR Part 12 (for commercial items)Uniform Commercial Code (UCC)
3FAR – What is it? Tool to ensure material terms are in writing Provides specific contract requirements for most significant contractual circumstancesUnlike UCC, FAR provisions normally cannot be tailoredFavors one contracting party (Government) over the otherto protect the taxpayer
4FAR – What is it?Governs Government acquisition of commercial itemsRelies on market to regulate price and qualitySome commercial item acquisition provisions can betailored [exceptions to tailoring, See FAR (b)]No property clauses unless the Government or Prime adds them in!!!
5UCC – What is it?Largely adopted by 49 states (Louisiana) and Washington D.C.Fundamental Purposes [UCC 1-102(2)]To simplify, clarify and modernize the law governing commercial transactionsTo permit continued expansion of commercial practices through custom, usage and agreement, andTo make uniform the laws of various jurisdictionsDesigned To Facilitate The Free Flow Of CommerceSupplies reasonable substitutes for missing terms
6Three Part Comparison • Uniform Commercial Code Contractual presumptions applicable to commercial transactions between merchantsParty-neutral• Federal Acquisition RegulationLargely mandatory terms and conditions appropriate for contracts between a private contractor and the GovernmentFavors the Government and the taxpayer• FAR Part 12 - Government Acquisition of Commercial ItemsAcknowledges that typical Government contract methods are not effective for the acquisition of commercial itemsMiddle ground between Traditional FAR and UCC
7When Does FAR. Part 12 Apply? Federal Acquisition Streamlining Act (FASA) of 1994(Public Law )• Acquisition of supplies or services that meet FAR 2.1 definition of commercial itemItems customarily used by general public or non-governmentalentities for non-governmental purposesItems not yet on market evolved from a commercial item throughtechnological or performance advancementsModified commercial items
8FAR “Commercial Item”1) any item, other than real property, that is of a type customarily used for non-governmental purposes, and that a) has been sold, leased, or licensed to the general public; orb) has been offered for sale, lease, or license to the general public2) any item that evolved from an item described in paragraph 1), and will be available from the commercial marketplace;3) any item that would satisfy a criterion in 1) or 2) but for “modifications”;4) any combination of items meeting requirements of 1), 2), or 3);
9FAR 2.101 “Commercial Item” “Commercial item” (FAR 2.101) - Continued 5) installation, maintenance or training services to support 1) thru 4);6) services of a type offered and sold competitively in substantial quantities in the commercial marketplace. . . not including those sold on hourly rates;7) any item, or combination of items or services in 1) thru 6)8) a non-developmental item, if the item was developed exclusively at private expense and sold in substantial quantities, on a competitive basis to state & local governments.
10Contract Formation Comparison? Uniform Commercial Code - Commercial TransactionsOffer & Acceptance Need Not Be Unequivocal - Writing Not RequiredUCC 2-207: expression of acceptance containing additional, non-material terms is still acceptance (I accept with the following minor changes)UCC 2-305: failure to specify price is not fatalNo Competition RequirementsFAR - Government Non-Commercial PurchasesOffer And Acceptance Are Clear And UnequivocalSealed Bidding Procedures (FAR Part 14) And Negotiated Procurements(FAR Part 15)Written termsDescription of goods, price, place of delivery and inspection/acceptance termsRequirement Of Full And Open Competition (FAR 6)
11Contract Formation Comparison? continued Government Acquisition Of Commercial Items - FAR part 12Solicitation And Evaluation RequirementsSolicitation pursuant to FAR (SF 1449) - encouraged, if simplified acquisition threshold not exceededStreamlined solicitation pursuant to FAR appropriate when FAR not usedFAR or evaluation and contracting officer acceptanceFormal CompetitionBoth FAR and FAR discuss methods for evaluating and comparing multiple offers
12Warranties Comparison UCC - Commercial TransactionsExpress And Implied WarrantiesUCC 2-313: Express Warranty- Affirmation of fact or promise which is part of the bargain- I.E., description of goods or showing of sampleUCC 2-314: Implied Warranty (Merchantability; Usage of Trade)- Fair, average quality- Fit for ordinary purposeUCC 2-315: Implied Warranty (Fitness For Particular Purpose)- Seller has reason to know the buyers intended use- Seller knows buyer is relying on sellers expertise
13Warranties Comparison FAR - Government Non-Commercial PurchasesFAR and FAR : contain non-mandatory warranties for simple and complex itemsEach warrant that items are free from defects and will conform with requirements of the contractEach disclaim the implied warranty of fitness and merchantabilityGovernment Acquisition Of Commercial Items FAR Part 12FAR (o): Warrants Merchantability and FitnessAccommodates Commercial Tendencies - Offers No More Than Warranties Applied In Commercial PracticeNegotiable
14Inspection Comparison UCC - Commercial TransactionsUCC Buyers Right To Inspection Of GoodsBuyer can inspect prior to payment at any time, in any reasonable mannerExpenses of inspection borne by buyer, UNLESS goods are rejectedFAR - Government Non-Commercial PurchasesFAR Inspection Of SuppliesContractor must establish and maintain an inspection system acceptable to the GovernmentGovernment retains right to inspect goods prior to acceptanceGovernment retains right to review inspection documents during contract performance and for as long afterwards as the contract requires
15Inspection Comparison - Continued Government Acquisition Of Commercial Items FAR Part 12FAR (a) - Inspection/Acceptance For Commercial ItemsSeller warrants that the goods conform with the contract requirementsGovernment retains right to inspect goods prior to acceptanceGovernment has no right to examine inspection documentation
16Unilateral Changes UCC - Commercial Transactions Buyer Has No Right To Unilaterally Change A ContractUCC 2-209: Addresses Modification, Rescission And WaiverConsideration not necessary to modify or change contractModifications must be in writing and bilateralFAR - Government Non-Commercial PurchasesFAR Part 43: Gives Government The Right To Unilaterally Changeet seq.: Contracting Officer Change Orders Must Be Within General Scope Of The ContractGovernment Acquisition Of Commercial ItemsFAR (c): Unless Contract Has A Changes Clause, Only Bilateral Modifications Are Permitted And They Must Be In Writing
17Contractor Claims/Disputes UCC - Commercial TransactionsTraditional Litigation (Courts, Arbitration…..)Defines Permissible DamagesFAR - Government Non-Commercial PurchasesIf Government Issues A Change Order And Parties Cant Agree On Price or Schedule - Dispute Resolution Under Contract Disputes Act (C.D.A.), 41 U.S.C. § 601 et seq.Constructive Changes - Also Give Rise to C.D.A. ProceduresGovernment Acquisition Of Commercial Items FAR Part 12FAR (c) - Changes Can Be Made Only By Written Agreement Of The PartiesFAR (d) - Disputes. Failure To Reach Agreement On MattersArising Under Or Relating To The Contract Is A Dispute Subject To The C.D.A.
18Terminations for Convenience UCC - Commercial TransactionsNo Coverage Unless Negotiated Into ContractIf Commercial Contract Contains Termination for Convenience Clause, Contract May Be Nonbinding If No Provision For Recovery Of CostsFAR - Government Non-Commercial PurchasesFAR Subpart : Gives Government The Right To Unilaterally Terminate A Contract For ConvenienceGovernment Can Do So When In Governments Interests (See FAR (b))Contractor Entitled To Cost Of Terminated Work Plus Profit on Costs IncurredIf Cannot Reach Agreement: A Dispute, Subject To C.D.A. ProceduresGovernment Maintains Audit Rights For 3 Years After Final Settlement
19Terminations for Convenience - Continued Government Acquisition Of Commercial Items FAR Part 12FAROnly when in Governments best interestsContractor entitled to % of work performed plus reasonable termination costsNo Government audit rights
20Cost or Pricing Data UCC - Commercial Transactions Not Addressed FAR - Government Non-Commercial PurchasesContractor Must Certify That It Has Given All Facts Which All Prudent Parties Would Expect To Impact Negotiations10 U.S.C. § 2306a (TINA), 41 U.S.C. § 254(b) (authorizing audit and inspection)ExceptionsAcquisition below minimum threshold -$650,000Prices set by lawDetermination of adequate price competitionCommercial item acquisitionsAcquisition Of Government Commercial Items FAR Part 12Exempt From Disclosure
21Audit Rights UCC - Commercial Transactions No Coverage FAR - Government Non-Commercial Purchases: Audit and Records, NegotiationUntil 3 years from final paymentProposal, pricing, negotiation and performance recordsAccess for Comptroller General or Contracting OfficerAdditional Audit Rights Under The Inspection ClauseGovernment Acquisition Of Commercial Items FAR Part 12FAR (d): If Competitive, Exceeds Simplified Threshold And ExcludesUntil three years from final paymentAccess to directly pertinent records involving transactions related to thecontract, not to pre-award disclosures or cost or pricing dataAccess for Comptroller General
22Property Clauses UCC - Commercial Transactions No Coverage FAR - Government Non-Commercial PurchasesStandard Property Clauses and Coverage in FAR and DFARGovernment Acquisition Of Commercial Items FAR Part 12No Property Clauses and Coverage Unless Added By Government/Prime
23Summary - FAR & UCC - Distinctions FAR/GOVERNMENTActual contracting authority requiredFormal T&C and mandated clauses“Offer” & “Acceptance” unequivocalSpecific ethics/standards of conductWarranties only as expressedSpecific inspection/acceptance criteriaUCC/COMMERCIALApparent authority sufficientInformality and many implied termsEquivocal and/or contrary terms can create contractGood faith/company policyImplied and express warrantiesImplied & statutory terms for inspection/acceptance/rejection
24Summary - FAR & UCC – Distinctions - Continued FAR/GOVERNMENTDamages for contractor default are limitedUnilateral convenience termination rightChanges clause (unilateral)Cost data required over $ thresholdDisputes resolution procedures/limitsFormal competition requiredAuthority to audit seller’s booksUCC/COMMERCIALUCC provides for excess costs, plus incidental & consequential damagesNo collateral rightsNo cost/pricing data rightsNumerous alternatives availableNo such requirementNot generally!