[Federal Register Volume 68, Number 75 (Friday, April 18, 2003)]
[Proposed Rules]
[Pages 19293-19299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9554]



[[Page 19293]]

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Part III





Department of Defense





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General Services Administration





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National Aeronautics and Space Administration





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48 CFR Parts 8 and 38



Federal Acquisition Regulation; Federal Supply Schedules Services and 
Blanket Purchase Agreements (BPAs); Proposed Rule

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / 
Proposed Rules

[[Page 19294]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 8 and 38

[FAR Case 1999-603]
RIN 9000-AJ63


Federal Acquisition Regulation; Federal Supply Schedules Services 
and Blanket Purchase Agreements (BPAs)

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to incorporate policies for 
services and to strengthen the procedures for establishing Blanket 
Purchase Agreements under the Federal Supply Schedules.

DATES: Interested parties should submit comments in writing on or 
before June 17, 2003 to be considered in the formulation of a final 
rule.

ADDRESSES: Submit written comments to--General Services Administration, 
FAR Secretariat (MVA), 1800 F Street, NW., Room 4035, ATTN: Laurie 
Duarte, Washington, DC 20405.
    Submit electronic comments via the Internet to--farcase.1999-
603@gsa.gov.
    Please submit comments only and cite FAR case 1999-603 in all 
correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAR case 1999-603.

SUPPLEMENTARY INFORMATION: 

A. Background

    The Multiple Award Schedules (MAS) program, directed and managed by 
the General Services Administration (GSA), provides Federal agencies 
with a simplified process for obtaining commercial supplies and 
services at prices associated with volume buying. For much of its 
history, the MAS focused on the sale of products. In recent years, 
however, GSA has sought to facilitate broad access to service 
contractors. This general transformation of the schedules program has 
coincided with a trend in Federal procurement towards acquiring managed 
solutions from the marketplace. The amount of services acquisition from 
the MAS has grown steadily as agencies increasingly turn to schedule 
contractors to meet their needs.
    To assist its customers, GSA developed ``special ordering 
procedures'' that address the acquisition of services.
    However, because FAR subpart 8.4 has remained primarily geared 
towards products, agencies have been inconsistent in adhering to 
certain basic acquisition requirements when buying services off the 
MAS, such as in their use of statements of work, effective pricing of 
orders, application of competition, and proper documentation of award 
decisions.
    The FAR Council seeks to significantly improve the application of 
acquisition basics on MAS purchases for services and reinforce sound 
MAS practices generally. To achieve this result, the Civilian Agency 
Acquisition Council (CAAC) and the Defense Acquisition Regulations 
Council (DARC) are proposing numerous amendments to FAR subpart 8.4. In 
developing these changes, the CAAC and DARC, in coordination with the 
FAR Council, carefully considered the findings and recommendations made 
by the General Accounting Office in its report no. GAO-01-125, Contract 
Management: Not Following Procedures Undermines Best Pricing Under 
GSA's Schedule.
    Accordingly, the rule proposes to amend FAR subpart 8.4 to--
    [sbull] Add new coverage on use of statements of work when 
acquiring services from the schedules;
    [sbull] Clarify and strengthen the procedures for establishing 
Blanket Purchase Agreements against the schedules;
    [sbull] Reinforce documentation requirements generally and address 
the documentation of sole source orders in particular;
    [sbull] Highlight the availability of ``e-Buy,'' GSA's electronic 
quote system, to encourage greater transparency through use of 
electronic media;
    [sbull] Add new coverage to allow agencies to make payment for oral 
or written orders by any authorized means, including the Governmentwide 
commercial purchase card;
    [sbull] Clarify the procedures for termination for cause and 
convenience; and
    [sbull] Reorganize and revise the subpart text for ease of use.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule addresses internal Government administrative 
procedures and does not impose any additional requirements on 
Government offerors or contractors. An Initial Regulatory Flexibility 
Analysis has, therefore, not been performed. We invite comments from 
small businesses and other interested parties. The Councils will 
consider comments from small entities concerning the affected FAR parts 
8 and 38 in accordance with 5 U.S.C. 610. Interested parties must 
submit such comments separately and should cite 5 U.S.C. 601, et seq. 
(FAR case 1999-603), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 8 and 38

    Government procurement.

    Dated: April 14, 2003.
Cecelia L. Davis,
Acting Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 8 and 
38 as set forth below:
    1. The authority citation for 48 CFR parts 8 and 38 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES

    2. Amend section 8.401 by revising paragraphs (a), (b), and (c); 
and by removing from the introductory text of paragraph (d) and (d)(2) 
the word ``office'' and adding in its place. The revised text reads as 
follows:

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8.401  General.

    (a) The Federal Supply Schedule program, directed and managed by 
the General Services Administration (GSA), provides Federal agencies 
with a simplified process for obtaining commercial supplies and 
services at prices associated with volume buying (also see 8.002). 
Indefinite delivery contracts are awarded with commercial firms to 
provide supplies and services at stated prices for given periods of 
time. The Department of Defense manages a similar system of schedule-
type contracting for military items. The Department of Defense systems 
are not covered by this subpart.
    (b) The GSA schedule contracting office issues Federal Supply 
Schedules publications containing the information necessary for placing 
delivery or task orders with schedule contractors. Ordering offices 
issue orders directly to the schedule contractors. Ordering offices may 
request copies of schedules by completing GSA Form 457, FSS 
Publications Mailing List Application, and mailing it to the--

GSA Centralized Mailing List Service (7CAFL), PO Box 6477, Fort Worth, 
TX 76115.


Copies of GSA Form 457 also may be obtained from this address.
    (c) GSA offers an on-line shopping service called ``GSA 
Advantage!.'' It enables ordering offices to search specific 
information (i.e., national stock number, part number, common name), 
review delivery options, place orders directly with contractors (or ask 
GSA to place orders on the agency's behalf), and pay contractors for 
orders using the Governmentwide commercial purchase card (or pay GSA). 
Ordering offices may access the ``GSA Advantage!'' shopping service at 
http://www.gsaadvantage.gov. GSA's electronic quote system, ``e-Buy,'' 
which may be accessed through GSA Advantage!, provides a medium for 
transmitting notice to contractors of the ordering office's needs. For 
more information or assistance, contact GSA at Internet e-mail address: 
gsa.advantage@gsa.gov.
* * * * *
    3. Revise section 8.402 to read as follows:


8.402  Applicability.

    Procedures in this subpart apply to orders placed against Federal 
Supply Schedules. GSA may have established special ordering procedures 
for a particular schedule in which case that schedule will specify 
those special ordering procedures.
    4. Add section 8.403 to read as follows:


Sec.  8.403  Use of Federal Supply Schedules.

    (a) General. Parts 13, except 13.303-2(c)(3), 15, and 19 do not 
apply to orders placed against Federal Supply Schedules (see 8.404-5). 
Orders and Blanket Purchase Agreements placed against a Multiple Award 
Schedule (MAS), using the procedures in this subpart, are considered to 
be issued using full and open competition (see 6.102(d)(3)). Therefore, 
when establishing a Blanket Purchase Agreement or placing orders under 
Federal Supply Schedules using the procedures of 8.404, ordering 
offices need not seek further competition, synopsize the requirement, 
or consider small business programs.
    (b) Acquisition planning. Orders placed under a Federal Supply 
Schedule contract are not exempt from the development of acquisition 
plans (see subpart 7.1), and an information technology acquisition 
strategy (see Part 39).
    (c) Pricing. Supplies offered on the schedule are listed at fixed 
prices. Services offered on the schedule are priced either at hourly 
rates or at a fixed price for performance of a specific task (e.g., 
installation, maintenance, and repair). GSA has already determined the 
prices of supplies and fixed-price services and rates for services 
offered at hourly rates under schedule contracts to be fair and 
reasonable. Therefore, ordering offices are not required to make a 
separate determination of fair and reasonable pricing except for a 
price evaluation as required by 8.404-2(c)(3). By placing an order 
against a schedule contract using the procedures in 8.404, the ordering 
office has concluded that the order represents the best value and 
results in the lowest overall cost alternative (considering price, 
special features, administrative costs, etc.) to meet the Government's 
needs.
    5. Revise section 8.404 and the section heading to read as follows:


Sec.  8.404  Ordering procedures for Federal Supply Schedules.

    Ordering offices shall use the ordering procedures of this section 
when placing an order or establishing a Blanket Purchase Agreement 
(BPA) for supplies or services. The procedures in this section, other 
than those in 8.404-8, apply to all optional and mandatory use 
schedules. The procedures in 8.404-8 apply only to mandatory use 
schedules.
    6. Add sections 8.404-1 and 8.404-2 to read as follows:


Sec.  8.404-1  Ordering procedures for supplies and fixed-price 
services.

    (a) Ordering offices shall use the procedures of this subsection 
for ordering supplies and for ordering services that are listed in the 
schedule contracts as a fixed price for the performance of a specific 
task (e.g., installation, maintenance and repair).
    (b) Orders at or below the micro-purchase threshold. Ordering 
offices may place orders at or below the micro-purchase threshold with 
any Federal Supply Schedule contractor that can meet the agency's 
needs.
    (c) Orders exceeding the micro-purchase threshold but not exceeding 
the maximum order threshold. Place orders with the schedule contractor 
that can provide the supply or service that represents the best value. 
Before placing an order, an ordering office shall consider reasonably 
available information about the supply or service offered under MAS 
contracts by using the GSA Advantage! on-line shopping service, or by 
reviewing the catalogs or pricelists of at least three schedule 
contractors (see 8.404-5). Select the delivery and other options 
available under the schedule that offers the best value to meet the 
agency's needs. The ordering office may consider among other factors--
    (1) Special features of the supply or service required for 
effective program performance;
    (2) Trade-in considerations;
    (3) Probable life of the item selected as compared with that of a 
comparable item;
    (4) Warranty considerations;
    (5) Maintenance availability;
    (6) Past performance; and
    (7) Environmental and energy efficiency considerations.
    (d) Orders exceeding the maximum order threshold. Each schedule 
contract has an established maximum order threshold. This threshold 
represents the point where it is advantageous for the ordering office 
to seek a price reduction. In addition to following the procedures in 
paragraph (c) of this section and before placing an order that exceeds 
the maximum order threshold or establishing a Blanket Purchase 
Agreement (BPA) (see 8.404-3), ordering offices shall--
    (1) Review an appropriate number of additional schedule 
contractors' catalogs or pricelists, or use the GSA Advantage! on-line 
shopping service;
    (2) Based upon the initial evaluation, seek price reductions from 
the schedule contractor(s) considered to offer the best value (see 
8.403); and
    (3) After seeking price reductions, place the order with the 
schedule contractor that provides the best value (see 8.403). If 
further price reductions are not offered, an order may still be placed.

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Sec.  8.404-2  Ordering procedures for services using a statement of 
work.

    (a) Ordering offices shall use the procedures in this subsection 
when ordering services priced at hourly rates in the schedule 
contracts. The applicable services will be identified in the Federal 
Supply Schedule publications and the contractor's catalogs/pricelists.
    (b) Orders at or below the micro-purchase threshold.  Ordering 
offices may place orders at or below the micro-purchase threshold with 
any Federal Supply Schedule contractor that can meet the agency's 
needs.
    (c) For orders exceeding the micro-purchase threshold. The ordering 
office shall develop a statement of work. All statements of work shall 
include the work to be performed, location of work, period of 
performance, deliverable schedule, applicable standards, and any 
special requirements (e.g., security clearances, travel, special 
knowledge).
    (1) Agencies shall use performance-based statements of work to the 
maximum extent practicable. When preparing statements of work, ordering 
offices shall, to the maximum extent practicable--
    (i) Describe the requirements in terms of results required rather 
than the methods of performance of the work;
    (ii) Rely on the use of measurable performance standards and 
financial incentives to encourage innovative and cost effective methods 
of performing the work; and
    (iii) Develop a quality assurance surveillance plan that will be 
used to monitor performance.
    (2)(i) For proposed orders not expected to exceed the maximum order 
threshold, the ordering office must provide the statement of work, and 
selection criteria (e.g., experience and past performance) to at least 
three schedule contractors. Schedule contractors should be requested to 
submit firm-fixed prices to perform the services identified in the 
statement of work.
    (ii) For proposed orders exceeding the maximum order threshold or 
for establishing a BPA (see 8.404-3), the ordering office shall, in 
addition to meeting the requirements of paragraph (c)(2)(i), provide 
the statement of work and selection criteria to an appropriate number 
of additional schedule contractors that offer services that will meet 
the agency needs.
    (iii) The ordering office shall provide the statement of work and 
selection criteria to any schedule contractor who requests a copy of 
it.
    (3) The ordering office shall evaluate responses received against 
the selection criteria provided to the schedule contractors. The 
ordering office is responsible for considering the level of effort and 
mix of labor proposed to perform a specific task being ordered and for 
making a determination that the total price is reasonable. Place the 
order or establish the BPA with the schedule contractor that represents 
the best value (see 8.403).
    (4) To the maximum extent practicable, ordering offices shall 
develop quality assurance surveillance plans (see 37.602-2) when using 
a performance-based statement of work. These plans shall recognize the 
responsibility of the contractor (see 46.105) to carry out its quality 
control obligations and shall contain measurable inspection and 
acceptance criteria corresponding to the performance standards 
contained in the statement of work. The quality assurance surveillance 
plans shall focus on the level of performance required by the statement 
of work, rather than the methodology used by the contractor to achieve 
that level of performance.
    7. Revise section 8.404-3 and the section heading to read as 
follows:


8.404-3  Blanket purchase agreements (BPAs).

    (a)(1) Establishment. Ordering offices may establish BPAs under any 
schedule contract to fill repetitive needs for supplies or services. 
BPAs may be established with one or more schedule contractors. The 
number of BPAs to be awarded is within the discretion of the office 
establishing the BPA. The number of BPA awards should be based on a 
strategy that is expected to maximize the effectiveness of the BPA(s). 
In determining how many BPAs to award, consider--
    (i) The scope and complexity of the requirement(s);
    (ii) The technical qualifications of the Schedule contractor(s);
    (iii) The administrative costs of BPAs; and
    (iv) The need to periodically compare multiple technical approaches 
or prices.
    (2) Award of a single BPA or multiple BPAs shall be made using the 
procedures of 8.404-1 or 8.404-2. BPAs shall address the frequency of 
ordering, invoicing, discounts, requirements (e.g. estimated 
quantities, work to be performed), delivery locations, and time. In 
addition, multiple BPAs shall specify the procedures for placing orders 
under the BPA.
    (3) Establishment of a multi-agency BPA against a Federal Supply 
Schedule is permitted if all participating agencies are signatories to 
the BPA.
    (b) Ordering from blanket purchase agreements (BPAs)--(1) Single 
award BPA. If the ordering office awards one BPA, authorized users may 
place the order directly under the established BPA when the need for 
the supply or service arises.
    (2) Multiple BPAs. If the ordering office awards multiple BPAs, 
before placing an order exceeding $2,500, the ordering office shall--
    (i) Forward the requirement or statement of work along with the 
selection criteria to the number of BPA holders according to the 
procedures provided in the BPA;
    (ii) Evaluate the responses received and make a best value 
determination (see 8.403); and
    (iii) Award the order to the schedule contractor that represents 
the best value.
    (3) If the BPA is for hourly rate services, the ordering office 
shall develop a statement of work for requirements covered by the BPA, 
unless the BPA contains fixed prices for specific tasks. All orders 
under the BPA shall specify a price for the performance of the specific 
task identified in the statement of work.
    (c) Review of BPAs. Ordering offices shall review BPAs at least 
once a year. The purpose of the review is to determine whether the BPA 
still represents the best value (see 8.403). During the annual review, 
agencies shall consider whether additional price reductions could be 
obtained if estimated quantities/amounts have been exceeded and seek 
price reductions where possible.
    8. Add sections 8.404-4, 8.404-5, 8.404-6, 8.404-7, and 8.404-8 to 
read as follows:


8.404-4  Price reductions.

    In addition to the circumstances in paragraph 8.404-1(d), there may 
be other reasons to request a price reduction. For example, ordering 
offices should seek a price reduction when the supply or service is 
available elsewhere at a lower price or when establishing a BPA to fill 
recurring requirements. The potential volume of orders under BPAs, 
regardless of the size of the individual order, offers the opportunity 
to secure greater discounts. Schedule contractors are not required to 
pass on to all schedule users a price reduction extended only to an 
individual agency for a specific order.


8.404-5  Small business.

    When conducting evaluations or establishing a BPA and before 
placing an order, consider including, if available, one or more small 
business, veteran-owned small business, service-

[[Page 19297]]

disabled veteran-owned small, HUBZone small business, women-owned small 
business, or small disadvantaged business schedule contractor(s). 
Orders placed against the schedules may be credited toward the ordering 
agency's small business goals. For orders exceeding the micro-purchase 
threshold, ordering offices should give preference to the items of 
small business concerns when two or more items at the same delivered 
price will satisfy the requirement. Ordering offices should survey GSA 
Advantage! and the Schedules e-Library at http://www.fss.gsa.gov for 
specific size status information for all schedule contractors.


8.404-6  Documentation.

    (a) The ordering office shall document, at a minimum--
    (1) The number and identity of the contracts reviewed and 
considered and the contractor from whom the supply or service was 
purchased;
    (2) The supply or service purchased;
    (3) The amount paid; and
    (4) The circumstances and rationale for restricting consideration 
of schedule contractors to less than that required in 8.404-1 or 8.404-
2, such as--
    (i) Only one source is capable of responding due to the unique or 
specialized nature of the work;
    (ii) The new work is a logical follow-on to an existing order 
provided that the original order was awarded in accordance with 8.404-1 
or 8.404-2; or
    (iii) An item peculiar to one manufacturer. A brand name item 
available on various schedule contracts is an item peculiar to one 
manufacturer.
    (5) Sole source requirements. (i) Orders placed under the Federal 
Supply Schedules are exempt from the requirements in Part 6. However, 
ordering offices shall--
    (A) Conduct sole source requirements, as defined in 2.101, under 
this subpart only if the need to do so is justified in writing and 
approved at the levels specified in paragraph (a)(5)(ii) of this 
section; and
    (B) Prepare sole source justifications using the format at 6.303-2, 
modified to reflect an acquisition under the authority of Section 201 
of the Federal Property and Administrative Services Act of 1949 (40 
U.S.C. 501).
    (ii) Justifications and approvals are required only for sole source 
requirements.
    (A) For proposed orders exceeding $100,000, but not exceeding 
$500,000, the contracting officer's certification that the 
justification is accurate and complete to the best of the contracting 
officer's knowledge and belief will serve as approval, unless a higher 
approval level is established in accordance with agency procedures.
    (B) For a proposed order exceeding $500,000, but not exceeding 
$10,000,000, the competition advocate for the procuring activity, 
designated pursuant to 6.501, or an official described in 6.304(a)(3) 
or (a)(4) must approve the justification and approval. This authority 
is not delegable.
    (C) For a proposed order exceeding $10,000,000 but not exceeding 
$50,000,000, the head of the ordering agency or the official described 
in 6.304(a)(3) and (a)(4) shall approve the justification and approval. 
This authority is not delegable.
    (D) For a proposed order exceeding $50,000,000, the official 
described in 6.304(a)(4) shall approve the justification and approval. 
This authority is not delegable, except as provided in 6.304(a)(4).
    (b) Additionally, for services acquired using the procedures at 
8.404-2, the ordering office shall also document, at a minimum--
    (1) The evaluation methodology used in selecting the contractor for 
award;
    (2) The rationale for any tradeoffs in making the award decision;
    (3) The price reasonableness determination required by 8.404-
2(c)(3); and
    (4) The rationale for using other than--
    (i) A firm-fixed price order; or
    (ii) A performance-based order.


8.404-7  Payment.

    Agencies may make payments for oral or written orders by any 
authorized means, including the Governmentwide commercial purchase 
card.


8.404-8  Ordering procedures for mandatory use schedules.

    (a) This subsection applies only to orders against schedule 
contracts with mandatory users. When ordering from multiple-award 
schedules, mandatory users shall also follow the procedures provided in 
this section for optional use schedules, as appropriate.
    (b) Ordering offices shall not solicit bids, proposals, quotations, 
or otherwise test the market solely for the purpose of seeking 
alternative sources to Federal Supply Schedules.
    (c) Schedules identify executive agencies required to use them as 
mandatory sources of supply. The single-award schedule shall be used as 
a primary source and the multiple-award schedule as a secondary source. 
Mandatory use of schedules is not a requirement if--
    (1) The schedule contractor is unable to satisfy the ordering 
office's urgent delivery requirement;
    (2) The order is below the minimum order thresholds;
    (3) The order is above the maximum order limitation;
    (4) The consignee is located outside the area of geographical 
coverage stated in the schedule; and
    (5) A lower price for an identical item (i.e., same make and model) 
is available from another source.
    (d) After any consultation required by the schedule, ordering 
offices are not required to forego or postpone their legitimate needs 
pending the award or renewal of any schedule contract.
    (e)(1) When an ordering office that is a mandatory user under a 
schedule determines that supplies or services available from the 
schedule will not meet its specific needs, but similar supplies or 
services from another source will, it shall submit a request for waiver 
to the--Commissioner, Federal Supply Service (F), GSA, Washington, DC 
20406.
    (2) Ordering offices shall not initiate action to acquire similar 
supplies or services from nonschedule sources until a request for 
waiver is approved by the Commissioner of the Federal Supply Service, 
except as otherwise provided in inter-agency agreements. Requests shall 
contain the following information:
    (i) A complete description of the required supply or service, 
whenever possible; e.g., descriptive literature such as cuts, 
illustrations, drawings, and brochures that explain the characteristics 
and/or construction.
    (ii) A comparison of prices and the technical differences between 
the requested supply or service and the schedule supply or service, 
identifying as a minimum the--
    (A) Inadequacies of the schedule supply or service to perform 
required functions; and
    (B) Technical, economic, or other advantages of the supply or 
service requested.
    (iii) Quantity required.
    (iv) Estimated annual usage or a statement that the requirement is 
nonrecurrent or unpredictable.
    9. Amend section 8.405-2 by revising the introductory paragraph; 
and by removing from paragraph (h) ``must'' and adding ``shall'' in its 
place. The revised text reads as follows:


8.405-2  Order placement.

    Ordering offices may place orders orally or use Optional Form 347, 
an agency-prescribed form, or an established electronic communications 
format to order supplies or services from schedules. The ordering 
office shall place orders directly with the contractor within the 
limitations specified in each

[[Page 19298]]

schedule. Orders shall include the following information in addition to 
any information required by the schedule:
* * * * *
    10. Revise sections 8.405-3 and 8.405-4, 8.405-5, and 8.405-6 and 
their section headings to read as follows:


8.405-3  Inspection and acceptance.

    (a) Supplies. (1) Consignees shall inspect supplies at destination 
except when--
    (i) The schedule indicates that mandatory source inspection is 
required by the schedule contracting agency; or
    (ii) A schedule item is covered by a product description, and the 
ordering office determines that the schedule contracting agency's 
inspection assistance is needed (based on the ordering volume, the 
complexity of supplies, or the past performance of the supplier).
    (2) When the schedule contracting agency performs the inspection, 
the ordering office will provide two copies of the order specifying 
source inspection to the schedule contracting agency. The schedule 
contracting agency will notify the ordering office of acceptance or 
rejection of the supplies.
    (3) Material inspected at source by the schedule contracting 
agency, and determined to conform with the product description of the 
schedule, shall not be reinspected for the same purpose. The consignee 
shall limit inspection to quantity and condition on receipt.
    (4) Unless otherwise provided in the schedule, acceptance is 
conclusive, except as regards for latent defects, fraud, or gross 
mistakes as that amount to fraud.
    (b) Services. (1) The ordering office has the right to inspect and 
test all services called for by the order, to the extent practicable, 
at all times and places during the period of the order. The ordering 
office shall perform inspections and tests as specified in the quality 
assurance surveillance plan in a manner that will not unduly delay the 
work.
    (2) If the ordering office performs inspections or tests on the 
premises of the contractor or a subcontractor, the contractor shall 
furnish, and shall require subcontractors to furnish, at no increase in 
order price, all reasonable facilities and assistance for the safe and 
convenient performance of these duties.


8.405-4  Remedies for inadequate performance.

    (a) If the contractor fails to perform an order, the ordering 
office may terminate for cause or modify the order to establish a new 
delivery date (after obtaining consideration, as appropriate).
    (b) If a contractor delivers a supply or service, but it does not 
conform to the order requirements, the ordering office may require the 
contractor to correct the defect by reperformance, at no increase in 
order price.
    (c) If reperformance will not correct the defects or is not 
possible, the ordering office may require the contractor to ensure that 
future performance conforms to order requirements and may reduce the 
order price to reflect its reduced value.
    (d) If the contractor does not promptly perform or does not take 
action to ensure conformity for future performance, the ordering office 
may terminate the order for cause. Ordering offices shall follow the 
procedures at 8.405-5 when terminating an order for cause.


8.405-5  Termination for cause.

    (a) An ordering agency contracting officer may terminate individual 
orders for cause. Terminations for cause shall comply with FAR 12.403. 
(b)(1) The schedule contracting office shall be notified of all cases 
where an ordering agency contracting officer has terminated an 
individual order by a Federal Supply Schedule contractor for cause or 
if fraud is suspected.
    (2) If the contractor claims that the failure was excusable, the 
ordering agency contracting officer shall consider the question of the 
failure to be a contract dispute (see 8.405-7). If the contractor does 
not claim that the failure was excusable, the ordering office may 
charge the terminated contractor with excess costs resulting from 
repurchase.
    (3) Any repurchase shall be made at as low a price as reasonable 
considering the quality required by the Government, delivery 
requirement, and administrative expenses. Copies of all repurchase 
orders, except the copy furnished to the contractor or any other 
commercial concern, shall include the notation:
    Repurchase against the account of ------ [insert contractor's name] 
under Order ------ [insert number] under Contract ------ [insert 
number].
    (4) When excess costs are anticipated, the ordering office may 
withhold funds due the contractor as offset security. Ordering offices 
shall minimize excess costs to be charged against the contractor and 
collect or setoff any excess costs owed.
    (5) If an ordering agency contracting officer is unable to collect 
excess repurchase costs, it shall notify the schedule contracting 
office after final payment to the repurchase contractor.
    (i) The notice shall include the following information about the 
terminated order:
    (A) Name and address of the contractor.
    (B) Schedule, contract, and order number.
    (C) National stock or special item number(s), and a brief 
description of the item(s).
    (D) Cost of schedule items involved.
    (E) Excess costs to be collected.
    (F) Other pertinent data.
    (ii) The notice shall also include the following information about 
the repurchase contract:
    (A) Name and address of the contractor.
    (B) Item repurchase cost.
    (C) Repurchase order number and date of payment.
    (D) Contract number, if any.
    (E) Other pertinent data.
    (c) Only the schedule contracting officer may terminate for cause 
any or all supplies or services covered by the schedule contract. If 
the schedule contracting officer has terminated any items covered by 
the schedule contract, no further orders may be placed for those items. 
Orders placed prior to termination for cause shall be fulfilled by the 
contractor unless terminated for the convenience of the Government by 
the ordering agency contracting officer.


8.405-6  Termination for the Government's convenience.

    (a) Ordering agency contracting officer may terminate individual 
orders for the convenience of the Government. Terminations for 
convenience shall comply with FAR 12.403.
    (b) Only the schedule contracting officer may terminate any or all 
supplies or services covered by the schedule contract for the 
convenience of the Government.
    (c) Before terminating orders for convenience, the ordering agency 
contracting officer shall endeavor to enter into a ``no cost'' 
settlement agreement with the contractor.


8.405-7  [Amended]

    11. Amend section 8.405-7 by removing from the introductory text of 
paragraph (a)(1) and paragraphs (a)(2) and (b) the word ``office'' and 
adding ``agency'' in its place.

PART 38--FEDERAL SUPPLY SCHEDULE CONTRACTING

    12. Revise section 38.000 to read as follows:


38.000  Scope of part.

    This part prescribes policies and procedures for contracting for 
supplies

[[Page 19299]]

and services under the Federal Supply Schedule program, which is 
directed and managed by the General Services Administration (see 
Subpart 8.4, Federal Supply Schedules, for additional information). The 
Department of Defense manages a similar system of schedule contracting 
for military items. The Department of Defense systems are not a part of 
the Federal Supply Schedule program.


38.101  [Amended]

    13. Amend section 38.101 in the first sentence of paragraph (a) by 
removing ``commonly used'' and adding ``commercial'' in its place; in 
the second sentence by removing the parenthetical ``(including 
requirements contracts)''; and in the last sentence of paragraph (e) by 
removing ``(see 8.404)'' and adding ``(see 8.403)'' in its place.

[FR Doc. 03-9554 Filed 4-17-03; 8:45 am]
BILLING CODE 6820-EP-P