This month’s Federal Register Updates include four important changes that will impact the day-to-day activities of Government Contractors and Agencies alike.  The first, a final DFARS rule on Performance-Based Payments, provides detailed guidance and instructions on the use of the Performance-Based Payment analysis tool, which is required to be used by all Contracting Officers contemplating use of performance-based payments on new fixed-price type contract awards.  The second is a proposed rule that would extend personal conflicts of interest to a newly expanded group of “covered employees” who perform functions closely associated with inherently governmental functions (not simply acquisition functions, as is currently the case under the present rule) and contracts for personal services.  The third change does not impose requirements on contractors, but does establish DoD procedures relating to the reported foreign ownership, control, or influence (FOCI) information that DoD is tasked with evaluating, mitigating, or negating. And the fourth important change, the President’s Memorandum and Executive Order on Compensation Data Issued on National Equal Pay Day, continues the President’s push for greater pay equality between women and minorities.

1. DFARS Final Rule on Performance-Based Payments (DFARS Case 2011-D045)

On March 31, 2014, DoD issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to provide detailed guidance and instructions on the use of the performance-based payment (PBP) analysis tool. 79 Fed. Reg. 17931. The PBP analysis tool is a cash-flow model used by DoD for evaluating alternative financing arrangements required to be used by all contracting officers contemplating use of performance-based payments on new fixed-price type contract awards, as contemplated under FAR Subpart 32.10 and DFARS Subpart 232.10.

The final rule provides detailed guidance and instructions regarding the use of the new performance-based payments analysis tool, available on the DPAP website in the Cost, Pricing and Finance Section, Performance Based Payments – Guide Book and Analysis Tool tab.  The Rule adds two contract clauses to the DFARS – DFARS 252.232-7012, Performance-Based Payments – Whole Contract Basis (March 2014); and DFARS 252.232-7013, Performance-Based Payments – Deliverable Item Basis (March 2014).

2. FAR Proposed Rule Extending Limitations on Personal Conflicts of Interest (FAR Case 2013-022)

On April 2, 2014, DoD, GSA and NASA issued a proposed rule to amend FAR Subpart 3.11 to extend the limitations on contractor employee conflicts of interest.  79 Fed. Reg. 18503. The proposed rule, if enacted as final, would extend personal conflicts of interest to a newly expanded group of “covered employees” who perform functions closely associated with inherently governmental functions (not simply acquisition functions, as is currently the case under the present rule) and contracts for personal services, including, for example:  budget preparation, feasibility studies, development of regulations, evaluation of another contractor’s performance, support of acquisition planning, or functions where it might be assumed that contractors are agency employees or representatives.

By extending contractor employee personal conflict of interest limitations and by expanding the definition of “covered persons” subject to the restrictions at FAR Subpart 3.11, the proposed rule advances the Government policies requiring contractors and subcontracts to identify and prevent personal conflicts of interest of their covered employees and prohibit covered employees who have access to non-public information by reason of their performance on Government contracts from using this information for personal gain.

As with the current FAR regulations on contractor employee personal conflicts of interest, the proposed rule will not apply to commercial items or acquisitions that do not exceed the simplified acquisition threshold.  Comments are due June 2, 2014.

3. DOD Interim Final Rule Updating the National Industrial Security Program

On April 9, 2014, DoD issued an interim final rule assigning responsibilities and establishing requirements related to the National Industrial Security Program (NISP) in order to ensure maximum uniformity and effectiveness for both DoD and non-DoD components for which DoD serves as the Cognizant Security Agency (CSA) and provides security services under the National Industrial Security Program.  79 Fed. Reg. 19467. The interim final rule is designed to help prevent unauthorized disclosures of classified information when a contractor has a foreign owner.  Specifically, this rule provides guidance on procedures used to ensure classified information is properly safeguarded when a contractor has reported foreign ownership, control or influence (FOCI) information that DoD is tasked with evaluating, mitigating, or negating.

Although the rule does not expressly levy requirements on contractors, it does establish several procedures for DoD as follows: (1) to determine facility security clearance (FSC) eligibility for U.S. companies that may be subject to FOCI; (2) to provide criteria for determining whether contracts are under FOCI; (3) to prescribe responsibilities in FOCI matters; and (4) to outline security measures to negate or mitigate the effects of FOCI to an acceptable level.

The regulations impose new timelines for the analysis of FOCI, which should assist contractors seeking prompt FOCI determinations, including timelines for contractor submission of a FOCI action plan and feedback on that plan, processing of National Interest Determinations (NIDs), appeal and resolution of FOCI determinations, and coordination with the Committee on Foreign Investment in the United States (CFIUS).

Formalization of detailed guidance on FOCI in these new regulations confirms DoD’s commitment to FOCI identification and mitigation.  The new rule will be implemented at 32 C.F.R. Part 117.

4. New Executive Order Promoting Greater Pay Equality

On April 8, 2014, President Obama issued (1) a Presidential Memorandum directing the Secretary of Labor to propose regulations to require federal contractors to report employee compensation data by sex and race and (2) an Executive Order preventing federal contractors from retaliating or discriminating against employees who discuss their compensation with other employees and applicants.