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    I need advice from someone expert in the FAR and contract law. There are multiple concerns that flow out of this but basically what I have is our contractor is building complex products that are used in satellite communications with their own money, prior to award of a government contract. Some of the contractor's buyers, program managers and contracts personnel have very close relationships with our buying commands (Air Force, Army, Navy etc.) and they will at times tell them that we can get your product to you quicker if we start building your product ahead of contract award, knowing that in 3, 6, 9 months down the road they will receive a contract from the Navy, Army etc. for whatever the product is. It's more complicated than this, but basically this is it. I believe this violates the FAR. I believe the FAR makes allowance for this kind of build ahead, that being Commercial items and Commercial items available off the shelf. None of the products I am talking about that our contractor is building ahead meet the FAR definitions of commercial items. So, part of my concerns are that our (DCMA) contract administration authority starts at contract award. Product they have built ahead and put in stores was built without us having the opportunity to perform surveillance on it. The award of contract also imposes many FAR and DFAR clauses on contractors as to how they are to perform on the contract. It imposes the quality system requirements, progress payment information, who has non-conforming material review board responsibilities, product specifications, statements of work and on and on. It puts DCMA quality, engineering, contracts personnel at risk, particularly quality personnel as they are the ones that sign the DD250's stating that the products meet all contractual requirements. But these products have built prior to our ability to perform contract administration as there was no signed contract. These are a few of my concerns on this build ahead issue. If you have any recommendation or can put me in touch with someone who may, I would appreciate it. Thank you for your time.


    Answer

    "Contractor building complex product using their own money prior to award of government contract, with the intent to sell the product to the government at a future date after receipt and award of government contract.
    I need advice from someone expert in the FAR and contract law.  There are multiple concerns that flow out of this but basically what I have is our contractor is building complex products that are used in satellite communications with their own money, prior to award of a government contract." 

    Comment 1.  There is nothing inherently or conceptually wrong or contra-FAR for a contractor to design, develop and produce products that may or may not have future application to the US Government or commercial requirements.  For a contractor to anticipate future requirement indicates a far-sited acceptance of some risk that may or may not be compensated by the government of commercial sales.  In this case however, it appears that advanced procurement information is being provided to the contractor contrary to current law and acceptable practice. 


    Some of the contractor's buyers, program managers and contracts personnel have very close relationships with our buying commands (Air Force, Army, Navy etc.) and they will at times tell them that we can get your product to you quicker if we start building your product ahead of contract award, knowing
    (!) that in 3, 6, 9 months down the road they will receive a contract from the Navy, Army etc. for whatever the product is.  It's more complicated than this, but basically this is it.  I believe this violates the FAR.

    Comment 2.  The statement indicates a possible violation of the Procurement Integrity Act and
    FAR 3.104 (Procurement Integrity) which provide guidelines with which to operate. The regulations direct you to avoid even the appearance of misconduct. It is always best to keep a contractor and potential contractor at “arm’s length,” and conduct yourself in the same manner with all contractors. This includes the handling of bids/proposals, contract discussions, security of sensitive information, and administration of the contract.
    FAR 103-1 defines participation as: “Participating personally and substantially in a Federal agency procurement” means –
    (1) Active and significant involvement of an official in any of the following activities directly related to that procurement:
    (i) Drafting, reviewing, or approving the specification or statement of work for the procurement.
    (ii) Preparing or developing the solicitation.
    (iii) Evaluating bids or proposals, or selecting a source.
    (iv) Negotiating price or terms and conditions of the contract.
    (v) Reviewing and approving the award of the contract.
    (2) “Participating personally” means participating directly, and includes the direct and active supervision of a subordinate s participation in the matter.
    (3) “Participating substantially” means that the official’s involvement is of significance to the matter. Substantial participation requires more than official responsibility, knowledge, perfunctory involvement, or involvement on an administrative or peripheral issue. Participation may be substantial even though it is not determinative of the outcome of a particular matter. A finding of substantiality should be based not only on the effort devoted to a matter, but on the importance of the effort. While a series of peripheral involvements may be insubstantial, the single act of approving or participating in a critical step may be substantial. However, the review of procurement documents solely to determine compliance with regulatory, administrative, or budgetary procedures does not constitute substantial participation in a procurement.
    (4) Generally, an official will not be considered to have participated personally and substantially in a procurement solely by participating in the following activities:
     
    (i) Agency level boards, panels, or other advisory committees that review program milestones or evaluate and make recommendations regarding alternative technologies or approaches for satisfying broad agency-level missions or objectives.
    (ii) The performance of general, technical, engineering, or scientific effort having broad application not directly associated with a particular procurement, notwithstanding that such general, technical, engineering, or scientific effort subsequently may be incorporated into a particular procurement.
     

    Additionally, FAR 3.104-3 -- Statutory and Related Prohibitions, Restrictions, and Requirements states the following;

    (a) Prohibition on disclosing procurement information (subsection 27(a) of the Act).
    (1) A person described in paragraph (a) (2) of this subsection must not, other than as provided by law, knowingly disclose contractor bid or proposal information or source selection information before the award of a Federal agency procurement contract to which the information relates.

     
    I believe the FAR makes allowance for this kind of build ahead, that being Commercial items and Commercial items available off the shelf.  None of the products I am talking about that our contractor is building ahead meet the FAR definitions of commercial items.  So, part of my concerns is that our (DCMA) contract administration authority starts at contract award. 

    Product they have built ahead and put in stores was built without us having the opportunity to perform surveillance on it.  The award of contract also imposes many FAR and DFAR clauses on contractors as to how they are to perform on the contract.  It imposes the quality system requirements, progress payment information, who has non-conforming material review board responsibilities, product specifications, statements of work and on and on.  It puts DCMA quality, engineering, contracts personnel at risk, particularly quality personnel as they are the ones that sign the DD250's stating that the products meet all contractual requirements.  But these products have built prior to our ability to perform contract administration as there was no signed contract.


    Comment 3.  It seems unreasonable that DCMA certify to tests and examinations not actually performed.  This should not happen and tends to contaminate veracity of the entire process.  Perhaps, another solution of acceptance may suffice.  If the warranty (for performance, quality, durability, conforming material, specifications, etc.) can be crafted to cover acceptance issues and guarantee the government that what is proffered is of sufficient quality, then our interests might be covered. 


    These are a few of my concerns on this build ahead issue.  If you have any recommendation or can put me in touch with someone who may, I would appreciate it. 


    The PCO should be informed of your concerns and take the lead in all of these preaward concerns.  It is his staff that might be violating ethical and procedural matters while at the same time placing DCMA in an awkward position.  If the contractor has a valid production contract, DCMA is enabled to perform their oversight accordingly. 
    The practice of giving contractor’s advance notice or advanced information has another unpalatable effect.  It stifles competition.  Obviously, this may be a legitimate sole source matter, but if it is not and others can produce the items, the contractor is taking advantage of the government.  Also, when the government wants to purchase these items, the contractor is not in a high risk position but can dictate pricing to his benefit.  Whereas, if the contractor is in the process of developing the item, the government is in a better position to negotiate a reasonable price and allocate risk and profit accordingly.  If the purchase is over $700K and it is noncompetitive, then the contractor must provide certified cost and pricing data, presuming no exemptions exist (e.g., not a commercial item).  This way, the contractor must provide proof of costs, and since the item is developed, the risk of producing the item should be low.
    One question comes to mind is the data rights.  Who owns them, the contractor or the government?  If the contractor develops the item, without government funding, then usually the contractor owns the data rights.  If US Government funding was used to develop the item then the government should have some right to the data package.  If the contractor used his own funding, then ownership lies with the contractor. 

    As for other points of contact, I would discuss this matter with the contract attorney.




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