[Federal Register Volume 81, Number 175 (Friday, September 9, 2016)]
[Proposed Rules]
[Pages 62445-62448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21610]


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GENERAL SERVICES ADMINISTRATION

48 CFR Parts 515, 538, and 552

[GSAR Case 2016-G506; Docket No. 2016-0016; Sequence No. 1]
RIN 3090-AJ75


General Services Administration Acquisition Regulation (GSAR); 
Federal Supply Schedule, Order-Level Materials

AGENCY: Office of Acquisition Policy, General Services Administration.

ACTION: Proposed rule.

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SUMMARY: The General Services Administration (GSA) is proposing to 
amend the General Services Administration Acquisition Regulation (GSAR) 
to clarify the authority to acquire order-level materials when placing 
a task order or establishing a Blanket Purchase Agreement (BPA) against 
a Federal Supply Schedule (FSS) contract. This proposed rule seeks to 
provide clear and comprehensive implementation of the ability to 
acquire order-level materials through the FSS program to create parity 
between FSS contracts and commercial indefinite-delivery/indefinite-
quantity (IDIQ) contracts, reduce the need to conduct less efficient 
procurement transactions, lower barriers of entry to the federal 
marketplace and make it easier to do business the federal government.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat Division at one of the addressees shown below on 
or before November 8, 2016 to be considered in the formation of the 
final rule.

ADDRESSES: Submit comments in response to GSAR Case 2016-G506 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments by searching for ``GSAR Case 2016-G506.'' Select the link 
``Comment Now'' that corresponds with GSAR Case 2016-G506. Follow the 
instructions provided on the screen. Please include your name, company 
name (if any), and ``GSAR Case 2016-G506'' on your attached document.
     Mail: General Services Administration, Regulatory 
Secretariat Division (MVCB), ATTN: Ms. Flowers, 1800 F Street NW., 2nd 
Floor, Washington, DC 20405.
    Instructions: Please submit comments only and cite GSAR Case 2016-
G506, in all correspondence related to this case. All comments received 
will generally be posted without change to http://www.regulations.gov, 
including any personal and/or business confidential information 
provided. To confirm receipt of your comment(s), please check 
www.regulations.gov, approximately two to three days after submission 
to verify posting (except allow 30 days for posting of comments 
submitted by mail).

FOR FURTHER INFORMATION CONTACT: Ms. Leah Price, Procurement Analyst, 
at 703-605-2558, or Mr. Curtis Glover, Sr., Procurement Analyst, at 
202-501-1448, for clarification of content. For information pertaining 
to status or publication schedules, contact the Regulatory Secretariat 
Division at 202-501-4755. Please cite GSAR Case 2016-G506.

SUPPLEMENTARY INFORMATION:

I. Background

    GSA is proposing to amend the General Services Administration 
Acquisition Regulation (GSAR) to establish special ordering procedures 
(per FAR 8.403(b)). These special ordering procedures clarify the 
authority to acquire order-level materials when placing an order or 
establishing a BPA against an FSS contract. Currently, most commercial 
indefinite-delivery/indefinite-quantity (IDIQ) contracts provide the 
flexibility to easily acquire order-level materials; however the FSS 
program does not. This proposed rule aims to create parity between the 
FSS program and other commercial IDIQs while also ensuring an 
appropriate set of controls or safeguards are put in place.
    Improving the acquisition of order level materials through the FSS 
program was expressly cited in the Office of Federal Procurement 
Policy's roadmap for simplifying the federal procurement process. (See 
Transforming the Marketplace: Simplifying Federal Procurement to 
Improve Performance, Drive Innovation, and Increase Savings, available 
at https://www.whitehouse.gov/sites/default/files/omb/procurement/memo/simplifying-federal-procurement-to-improve-performance-drive-innovation-increase-savings.pdf.) Providing the same flexibilities in 
the FSS program that are currently authorized for commercial IDIQ 
vehicles will help to reduce contract duplication and the associated 
administrative costs and inefficiencies for agencies. Simultaneously, 
it will reduce transaction costs for contractors, including small 
businesses, by eliminating the need for FSS contract holders to compete 
for and enter into additional contracts for this ancillary work. The 
Government Accountability Office (GAO) reports the costs of being on 
multiple contract vehicles ranged from $10,000 to $1,000,000 due to 
increased bid and proposal, and administrative costs.
    This proposed rule would achieve parity for the FSS program by 
providing further clarification in the GSAR of regulatory changes made 
by the Federal Acquisition Regulatory Council in years past to overcome 
the holdings in a Court of Federal Claims decision, ATA Defense 
Industries, Inc. v. United States, 38 Fed. Cl. 489 (1997) and a GAO 
opinion, Pyxis Corporation, B-282469; B-282469.2. These decisions were 
issued at a time when there was no guidance in the FAR about open 
market items and served as impetus for opening Federal Acquisition 
Regulation (FAR) Case 1999-614, bringing the guidance from the FSS 
Contractor Guide into the FAR. The FAR Case stated:


[[Page 62446]]


    It had been common practice to add ``incidental'' non-FSS items 
to FSS orders for administrative convenience. However, on July 15, 
1999, the General Accounting Office (GAO) ruled in a protest that 
agencies ``may no longer rely on the `incidentals' test to justify 
the purchase of non-FSS items in connection with an FSS buy; where 
an agency buys non-FSS items, it must follow applicable acquisition 
regulations'' (Pyxis Corporation, B-282469; B-282469.2). Therefore, 
it is proposed that a paragraph (d) be added to FAR 8.401, General, 
which would permit the addition of ``open market (noncontract)'' 
items to a FSS blanket purchase agreement or task or delivery order 
only if ``(1) all applicable acquisition regulations have been 
followed (e.g., publicizing ([FAR] Part 5), competition requirements 
([FAR] Part 6), acquisition of commercial items ([FAR] Part 12), and 
contracting methods ([FAR] Parts 13, 14, and 15)); (2) the ordering 
office contracting officer has determined the price for the open 
market items is reasonable; and (3) the items are clearly labeled as 
open market (noncontract) items on the order.''

    This FAR Case was finalized and included in Federal Acquisition 
Circular 2001-08, effective July 29, 2002. With subsequent changes, 
this text moved from FAR 8.401 to its present location in FAR 8.402.
    Separately, FAR case 2003-027, Additional Commercial Contract 
Types, published in the Federal Register at 71 FR 74667 on December 12, 
2006, expressly provided the authority to acquire order-level materials 
under commercial contracts. The case extended this authority to all 
commercial IDIQ contract vehicles, including contracts awarded pursuant 
to FAR part 12 and orders awarded pursuant to FAR subparts 16.5 and 
8.4.
    Alternate I of FAR clause 52.212-4 Contract Terms and Conditions--
Commercial Items was explicitly developed for contract vehicles where 
Time and Materials (T&M) or Labor-Hour (L-H) orders are contemplated. 
It defines ``materials'' to include direct materials, other direct 
costs, subcontracts, and indirect costs, and provides a means to 
acquire these materials within the scope of the FSS contract. It 
includes detailed instructions for the handling of each, none of which 
involves the competitive procedures required by FAR 8.402(f).
    Despite this clarification, FAR 8.402(f), which addresses ``open 
market items'' that are not on FSS, has been widely interpreted to mean 
that ordering activity Contracting Officers must conduct a separate 
open market competition for any and all materials not specifically 
awarded on the underlying FSS contract. As a result, FSS ordering 
activities have struggled with how to properly handle orders for which 
the exact items and quantities of materials is unknown. Years of 
confusion have, in turn, led to the creation of elaborate workarounds 
and the application of inconsistent policies and procedures.
    Providing clear and comprehensive implementation of this authority 
in the GSAR will result in parity regarding the ability to acquire 
order level materials from the FSS program and other commercial IDIQs. 
As a result, agencies will be able to further utilize the FSS program 
to meet their requirements rather than conducting separate open market 
procurements or further contributing to contract duplication through 
creating new commercial IDIQs that have a similar scope to existing FSS 
offerors, but that allow for order level materials.

II. Discussion and Analysis

    Amendments to GSAR parts 515, 538, and 552 are proposed by this 
rule. Specifically, GSA is proposing the following amendments:
     Add to GSAR 515.408(c) that ``offerors are not required to 
complete the commercial sales practices disclosure for order-level 
materials.
     Add a new GSAR subpart 538.71, Order-Level Materials, 
which clarifies the authority to acquire order-level materials when 
placing a task order or establishing a BPA against an FSS contract. 
This subpart defines order-level materials and lists the applicable 
Federal Supply Schedules that authorized the use of order-level 
materials. GSA will issue guidance to its contracting officers 
outlining the procedures for structuring these Federal Supply Schedules 
and how to administer FSS contracts where order-level materials are 
authorized.
     Add instructions in new GSAR subpart 538.71 for GSA 
contracting officers to use FAR clause 52.212-4 Alternate I in Federal 
Supply Schedules authorizing the use of order-level materials, with the 
following instructions for the clause fill-ins:
    [cir] Insert ``Each order must list separately subcontracts for 
services excluded from the FSS Schedule Hourly Rates'' in FAR clause 
52.212-4(e)(iii)(D).
    [cir] Insert ``Each order must list separately elements of other 
direct charge(s) for that order.'' in FAR clause 52.212-
4(i)(1)(ii)(D)(1).
    [cir] Insert ``none'' in FAR clause 52.212-4(i)(1)(ii)(D)(2).
    [cir] GSA is especially interested in comments on the clause fill-
in instructions.
     Add a new GSAR clause 552.238-XX, Special Ordering 
Procedures for the Acquisition of Order-Level Materials, which 
clarifies the authority to acquire order-level materials when placing a 
task order or establishing a BPA against an FSS contract. This new 
clause should be read as a special ordering procedure, as authorized in 
FAR 8.403(b). Operationally, it should be understood as an addition to 
the ordering procedures outlined in FAR 8.404(h). This new clause 
includes the special ordering procedures to be used when order-level 
materials are authorized controls that GSA is establishing when 
authorizing the use of ``order-level materials''. These controls 
include--
     Prohibiting order-level materials from being the primary 
basis of the order;
     Limiting the total value of order-level materials to 33 
percent of the overall order value;
     Requiring order-level materials to be purchased under a 
separate Special Item Number (SIN) to enable GSA to monitor the sales 
for order-level materials and evaluate the appropriate usage;
     Requiring the ordering activity to follow FAR 8.404(h) 
prior to placing an order including order-level materials;
     Requiring contractors proposing order-level materials as 
part of a solution to submit a minimum of three quotes for each order-
level material above the micro-purchase threshold. One of these three 
quotes may include materials furnished by the contractor under FAR 
52.212-4 Alternate I (i)(1)(ii)(A). The contractor shall submit the 
information to the ordering activity contracting officer or provide 
rationale for why three quotes cannot be obtained;
     Requiring the ordering activity contracting officer to 
determine all prices for order-level materials are fair and reasonable 
prior to placing an order; and
     Including controls to ensure any ceiling increase has been 
appropriately justified and approved in accordance with FAR 8.405-6.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and

[[Page 62447]]

Review, dated September 30, 1993. This proposed rule is not a major 
rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    GSA does 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. 601, et seq., because 
the rule merely clarifies the authority to acquire order-level 
materials when placing a task order or establishing a BPA against an 
FSS contract; however, an Initial Regulatory Flexibility Analysis 
(IRFA) has been prepared consistent with 5 U.S.C. 603, and is 
summarized as follows:

    This proposed rule amends the GSAR to clarify the authority to 
acquire order-level materials when placing a task order or 
establishing a BPA against an FSS contract. Currently, most 
commercial indefinite-delivery/indefinite-quantity (IDIQ) contracts 
provide the flexibility to easily acquire order-level materials; 
however the FSS program does not.
    Currently there are 13,850 small businesses that have GSA 
Schedule contracts. While the rule is expected to have a beneficial 
impact on these contractors by reducing bid and proposal preparation 
costs and simplifying the process for selling order-level materials 
to FSS customers, GSA does 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 merely clarifies the authority 
to acquire order-level materials when placing a task order or 
establishing a BPA against an authorized FSS contract.
    The proposed rule imposes no reporting, recordkeeping, or other 
information collection requirements.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no known significant alternatives to the rule. The 
impact of this rule on small business is not expected to be 
significant.

    The Regulatory Secretariat Division will be submitting a copy of 
the Initial Regulatory Flexibility Analysis (IRFA) to the Chief Counsel 
for Advocacy of the Small Business Administration. A copy of the IRFA 
may be obtained from the Regulatory Secretariat Division. GSA invites 
comments from small business concerns and other interested parties on 
the expected impact of this rule on small entities.
    GSA will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (GSAR Case 2016-G506) in 
correspondence.

V. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 515, 538, and 552

    Government procurement.

    Dated: September 2, 2016.
Jeffrey A. Koses,
Senior Procurement Executive, Office of Acquisition Policy, Office of 
Government-wide Policy, General Services Administration.

    Therefore, GSA proposes to amend 48 CFR parts 515, 538, and 552 as 
set forth below:

0
1. The authority citation for 48 CFR parts 515, 538, and 552 continues 
to read as follows:

    Authority:  40 U.S.C. 121(c).

PART 515--CONTRACTING BY NEGOTIATION

0
2. Amend section 515.408 by adding a sentence to the end of paragraph 
(c) introductory text to read as follows:


515.408  Solicitation provisions and contract clauses.

* * * * *
    (c) * * * Offerors are not required to complete the commercial 
sales practices disclosure for order-level materials (See subpart 
538.71).
* * * * *

PART 538--FEDERAL SUPPLY SCHEDULE CONTRACTING

0
3. Add subpart 538.71 to read as follows:
Subpart 538.71--Order-Level Materials
538.7100 Definitions.
538.7101 Applicability.
538.7103 Contract clauses.

Subpart 538.71--Order-Level Materials


538.7100  Definitions.

    Order-level materials means supplies and/or services acquired in 
direct support of an individual task or delivery order placed against a 
Federal Supply Schedule (FSS) contract, when the supplies and/or 
services are not known at the time of Schedule contract award. The 
prices of order-level materials are not established in the FSS 
contract. Order-level materials are not open market items discussed in 
FAR 8.402(f).


538.7101  Applicability.

    Order-level materials are authorized under all of the following:
    (a) Federal Supply Schedule 03 FAC.
    (b) Federal Supply Schedule 56.
    (c) Federal Supply Schedule 70.
    (d) Federal Supply Schedule 71.
    (e) Federal Supply Schedule 84.
    (f) Professional Services Schedule 99.
    (g) Federal Supply Schedule 738X.


538.7103  Contract clauses.

    (a) Use FAR clause 52.212-4 Alternate I in all Federal Supply 
Schedules authorized for the acquisition of order-level materials (see 
538.7101). Use the following language for the clause fill-in:
    (1) Insert ``Each order must list separately subcontracts for 
services excluded from the FSS Hourly.
    (2) Insert ``Each order must list separately the elements of other 
direct charge(s) for that order'' in (i)(1)(ii)(D)(1).
    (3) Insert ``none'' in (i)(1)(ii)(D)(2).
    (b) Use 552.238-XX, Special Ordering Procedures for the Acquisition 
of Order-Level Materials in all Federal Supply Schedules authorized for 
the acquisition of order-level materials (see 538.7101).

PART 552--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Add section 552.238-XX to read as follows:


552.238-XX  Special Ordering Procedures for the Acquisition of Order-
Level Materials.

    As prescribed in 538.7103(b), insert the following clause:

Special Ordering Procedures for the Acquisition of Order-Level 
Materials (DATE)

    (a) Order-level materials means supplies and/or services 
acquired in direct support of an individual task or delivery order 
placed against a Federal Supply Schedule (FSS) contract or FSS BPA, 
when the supplies and/or services are not known at the time of 
Schedule contract award. The prices of order-level materials are not 
established in the FSS contract. Order-level materials that are 
acquired following the procedures in paragraph (d) of this clause 
are not open market items discussed in FAR 8.402(f).
    (b) FAR 8.403(b) provides that GSA may establish special 
ordering procedures for a particular FSS or for some Special Item 
Numbers (SINs) within a Schedule.
    (c) The procedures in FAR Subpart 8.4 apply to this contract, 
with the exceptions listed in this clause. If a requirement in this 
clause is inconsistent with FAR Subpart 8.4, this clause takes 
precedence.
    (d) Procedures for including order-level materials when placing 
an individual task or delivery order against an FSS contract or FSS 
Blanket Purchase Agreement (BPA).
    (1) The procedures discussed in FAR 8.402(f) do not apply when 
placing task and delivery orders for order-level materials.
    (2) Order-level materials are included in the definition of the 
term ``materials'' in

[[Page 62448]]

GSAR clause 552.212-4 Alternate I, and therefore all provisions of 
clause 552.212-4 Alternate I that apply to ``materials'' also apply 
to order-level materials. The ordering activity shall follow 
procedures under the Federal Travel Regulation and FAR Part 31 when 
order-level materials include travel.
    (3) Order-level materials shall only be acquired in direct 
support of an order and not as the primary basis.
    (4) The cumulative value of order-level materials awarded under 
an FSS order shall not exceed 33 percent of the total value of the 
order.
    (5) All order-level materials shall be placed under the Order-
Level Materials SIN.
    (6) Prior to the placement of an order that includes order-level 
materials, the ordering activity shall follow procedures in FAR 
8.404(h).
    (7) To support the price reasonableness of order-level 
materials, the contractor proposing order-level materials as part of 
a solution shall submit a minimum of three quotes obtained by the 
contractor for each order-level material above the micro-purchase 
threshold. One of these three quotes may include materials furnished 
by the contractor under FAR 52.212-4 Alternate I (i)(1)(ii)(A) If 
the contractor cannot obtain three quotes, the contractor shall 
provide the rationale for why they cannot obtain three quotes to 
support the contracting officer's determination in (d)(7) of this 
section.
    (8) The ordering activity contracting officer must make a 
determination that prices for all order-level materials are 
determined fair and reasonable. The ordering activity contracting 
officer may base their determination on a comparison of the quotes 
received in response to the task or delivery order solicitation or 
other relevant pricing information available.
    (9) Prior to an increase in the ceiling price of order-level 
materials above the micro-purchase threshold, the ordering activity 
contracting officer shall--
    (i) Conduct an analysis of pricing and other relevant factors to 
determine if the action is in the best interest of the Government 
and obtain the approval at the levels described in FAR 8.405-6(d); 
or
    (ii) Follow the procedures at FAR 8.405-6 for a change that 
modifies the general scope of the order.
    (10) In accordance with GSAR clause 552.215-71 Examination of 
Records by GSA, GSA has the authority to examine the contractor's 
records for compliance with the pricing provisions in FAR clause 
52.212-4 Alternate I, to include examination of any books, 
documents, papers, and records involving transactions related to the 
contract for overbillings, billing errors, and compliance with the 
IFF and the Sales Reporting clauses of the contract.
    (11) Order-level materials are exempt from the following 
clauses:
    (i) 552.216-70 Economic Price Adjustment--FSS Multiple Award 
Schedule Contracts.
    (ii) 552.238-71 Submission and Distribution of Authorized FSS 
Schedule Pricelists.
    (iii) 552.238-75 Price Reductions.

(End of Clause)

[FR Doc. 2016-21610 Filed 9-8-16; 8:45 am]
 BILLING CODE 6820-61-P