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

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Presentation on theme: "Page Federal Contract Compliance – Commercial Items February 10, 2011 Midwest SBLO Meeting."— Presentation transcript:

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

2 page1 Introduction Presented by Ray Suennen Governmental Contracts Compliance Coordinator Integrys Energy Services, Inc

3 page2 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

4 page3 Definitions Commercial ItemFAR 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

5 page4 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 ……

6 page5 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 …….

7 page6 Federal Regulations Commercial Plan A commercial plan is the preferred type of subcontracting plan for contractors furnishing commercial items. FAR 52.219-9 (g)

8 page7 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

9 page8 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

10 page9 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)

11 page10 Federal Regulations Subcontracting Plan Requirements Negotiated Acquisition15.000 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

12 page11 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

13 page12 Federal Regulations Subcontracting Plan Exceptions Not Required 1) From small business concerns 2) For personal service contracts 3) When performance entirely outside of the US and its outlying areas 19.702

14 page13 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)

15 page14 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

16 page15 Federal Regulations Commercial Items Two very important clauses 52.212-5Contract 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 ContractorFAR 12.301(b)(4)

17 page16 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)

18 page17 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

19 page18 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)

20 page19 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

21 page20 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

22 page21 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

23 page 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) 22

24 page23 Small Business Administration Socioeconomic Program The need to provide opportunities to - Diverse Suppliers (Preferential Suppliers) Disadvantaged Women Veterans & Service-Disabled Veterans (those who have served and sacrificed for our country) Economically Deprived Areas - All Small Businesses (“SB”)

25 page24 Definition - Small Business A Small Businesses (SB) 1) Is organized for a profit Excludes Non-profit organizations Governmental agencies 2) Must have a place of business in the US (an office or plant)

26 page Definition - Small Business 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 25

27 page Definition - Small Business 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 26

28 page 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 27

29 page28 Size Standards – NAICS Codes 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)

30 page29 Size Standards – NAICS Codes 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)

31 page30 Size Standards – NAICS Codes 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

32 page Definition - Small Business 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 31

33 page Size Standards - NAICS Codes To cross reference SIC to NAICS codes, and to lookup NAICS codes use website - A complete NAICS code listing is at – /officials/size/table/index.html /officials/size/table/index.html Then select PDF format 32

34 page33 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

35 page34 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)

36 page35 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

37 page 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 36

38 page Definitions Contracting 2.101 “Purchasing, renting, leasing, or otherwise obtaining supplies and services from non- federal sources” Relate these definitions to taxes 37

39 page38 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

40 page39 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

41 page40 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

42 page 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) 41

43 page Definitions Spend/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 42

44 page43 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

45 page44 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

46 page45 Terms & Conditions – FAR Flow Down Clauses 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 are incorporated by reference, as applicable.

47 page46 Terms & Conditions – FAR Flow Down Clauses FAR Clauses in Full Text The FAR Clauses in full text are located on the Federal Government’s website at The FAR Flow Down Clauses per our commercial contracts are as follows:

48 page47 Terms & Conditions – FAR Flow Down Clauses FAR Flow Down Clause Numbers & Titles 52.222-21Prohibition of Segregation of Facilities (Feb 1999) 52.222-26Equal Employment Opportunity (May 2007) 52.222-35Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (Sep 2006) 52.222-36Affirmative Action for Workers with Disabilities 52.222-50Combating Trafficking in Persons (Feb 2009) 52.203-13Code of Business Ethics and Conduct (Apr 2010) 52.219-8Utilization of Small Business Concerns (May 2004) 52.204-10Reporting Executive Compensation and First-Tier Subcontract Awards (Jul 2010)

49 page48 Terms & Conditions – FAR Flow Down Clauses FAR Clause Responsibilities 52.222-21(A) Employment law, applies if have 15 or more employees, applies to all subcontracts 52.222-26(A) 52.222-35Applies when subcontract is $100,000 or more, promotes fair and equal treatment of veterans for employment opportunities 52.222-36(A)(Jun 1998) 52.222-50Ethical law relating to buying and selling of people, commercial sex acts and using forced labor, only violations reported

50 page49 Terms & Conditions – FAR Flow Down Clauses FAR Clause Responsibilities 52.203-13Applies to subcontracts over $5 million, promotes ethical conduct within business, a written ethical policy, distribute the policy, and ethical training, only violations reported 52.219-8Applies to subcontracts over $150,000, promotes practices for purchasing from small businesses, and small diverse businesses, no reporting

51 page50 Terms & Conditions – FAR Flow Down Clauses FAR Clause Responsibilities 52.204-10Applies to subcontracts of $25,000 or more, flows down only TEGE & subs to subcontractor, TEGE reports, information will be made public Part 1Provide general information on subcontracts and subcontractors, includes amount of subcontract Part 2Provide names & compensation of 5 highest paid executives, need to document exemption reason Most companies are exempt, since less than 80% of revenue is from Federal sources, those not exempt, will be providing to many companies

52 page51 Terms & Conditions – FAR Flow Down Clauses FAR Clause Responsibilities 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)

53 page52 Terms & Conditions – FAR Flow Down Clauses FAR Clause Responsibilities 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.

54 page53 Federal Regulations Commercial Items Exempt required flow down clauses can include 52.222-54 E-verify COTS exemption 22.1803(c)(1) 52.226-6Promoting Excess Food Donations52.226-6(c) Applies only to subcontractors “who will perform, under this contract, the provision, service, or sale of food in the United States”

55 page54 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

56 page Socioeconomic Program – Federal Definition Socioeconomic Programs Purchases from (Spend to) - Diverse Suppliers (preferential suppliers must be Small Businesses) - Other Small Businesses 55

57 page 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 56

58 page Socioeconomic Program – Federal Definitions Diverse Supplier (Preferential Suppliers) A)Are small businesses owned by CategoriesAcronym Women WOS Disadvantaged Individuals SDB Veterans VOS Service-Disabled Veterans SDVOS 57

59 page Socioeconomic Program – Federal Definitions 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. 58

60 page Socioeconomic Program – Federal Definitions 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 Corporation 59

61 page Socioeconomic Program – Federal Definitions 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 60

62 page Socioeconomic Program – Federal Definitions 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 61

63 page 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) 62

64 page 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) 63 Socioeconomic Program Goals

65 page 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 Program 64 Subcontracting Program Reporting

66 page Subcontracting Program Reporting 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 65

67 page Subcontracting Program Reporting 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) 66

68 page Subcontracting Program Reporting 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 67

69 page Subcontracting Program Reporting 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 68

70 page 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 69

71 page Subcontracting Plan Reporting 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 70

72 page Subcontracting Plan Reporting 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. 71

73 page Subcontracting Plan Reporting Diverse Spending Multiple Credit Reporting 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 72

74 page Subcontracting Plan Reporting Diverse Spending Multiple Credit Reporting 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. 73

75 page Subcontracting Plan Reporting 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 74

76 page Subcontracting Plan Reporting Federal Government’s Acquisition Policy To provide - 19.201 maximum practicable opportunities in its acquisitions to small businesses veteran- owned small businesses service-disabled veteran-owned SB HUBZone small businesses small disadvantaged businesses women-owned small businesses 75

77 page76 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%)

78 page77 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

79 page78 Summary Socioeconomic programs are focused on 1) supporting all small businesses 2) supporting small businesses with social and/or economic barriers (Supplier Diversity)

80 page79 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

81 page80 What are your questions and comments? Summary

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