FAR Changes: Commercial Services, Pass-Throughs A new rule limits pass-through charges on work performed by subcontractors. The rule is designed to prevent “excessive” pass-through charges in instances when the contractor or subcontractor provides no added value, or negligible value, to work done by a subcontractor. It applies only to contracts on which the prime subcontracts 70% of the work or more. The FAR councils said a contractor is not entitled to profit or fees when it provides little or no management of the subcontract. The rule is designed to eliminate unnecessary tiering of subcontracts. The rule applies to Defense Department contracts above the simplified acquisition threshold, including cost-reimbursement and fixed-price contracts. For civilian agencies, the rule applies only to cost-reimbursement contracts, including task and delivery orders, above the threshold. The Federal Acquisition Regulation councils adopted the interim rule to implement a provision of the 2009 Defense Authorization The interim rule, FAC 2005-37, FAR case 2008-031, implements a provision of the 2009 Defense Authorization Act. These other FAR changes, implementing provisions mandated by Congress, took effect Oct. 14: •An interim rule redefines commercial services. It provides that commercial services that are not offered and sold competitively in substantial quantities in the commercial marketplace may only be considered commercial items if the contracting officer determines in writing that the offeror has submitted enough information to evaluate the reasonableness of the price of those services. The interim rule, FAR case 2008-034, implements a provision of the 2009 Defense Authorization Act. Comments are due Dec. 14. •An interim rule codifies guidance issued by the Office of Management and Budget on the payment of award fees. Award fees should be linked to acquisition objectives in the areas of cost, schedule and technical performance. No award fee should be paid for performance that is graded less than satisfactory. The rule specifies the percentage of an award fee that should be paid for each performance rating. The rule prohibits rollover of award fees to give the contractor a second chance to earn them. It also provides guidance on determining whether to use an award or incentive type contract. The new rule follows OMB’s 2007 guidance on award fees. The Government Accountability Office reported this year that the Defense Department had embraced the guidance, but many contracting officials in other agencies were unaware of it. GAO found that contractors in the largest agencies were earning an average of more than 80% of the available fees, including some that were paid to companies whose performance was graded less than satisfactory. (SAA, 7/10) The interim rule is FAC 2005-37, FAR case 2008-008. Comments are due Dec. 14. •A final rule permits auditors from the Government Accountability Office to interview contractor employees. An interim rule has been in place since March 31. •A final rule limits the length of noncompetitive contracts awarded “under unusual and compelling urgency” to one year, unless the agency head grants an exception. The rule says such contracts should be limited to the minimum length necessary to complete the requirement.