Defense News Reports that DOD is Forecasting a $60 Billion Funding Shortfall, Portending More Program Terminations
Defense News reports that DOD's Quadrennial Defense Review (QDR) has identified a $60 billion funding shortfall over the next five years (2011 - 2015). The forecasted shortfall impacts "essential" military missions and DOD must "free up" the funds by the end of this year in order to avoid impacts. The only way to free up the funds will be to terminate existing "non-essential" programs to pay for the essential ones, and Secretary of Defense Gates has tasked each military service with identifying (by August 2009) their candidates for termination. (Note that the forecast assumes flat DOD budgets, which may be optimistic. If the Obama administration cuts Defense spending, the impacts to existing programs will be larger.) See the entire story here.
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DOD Revises DFARS to Limit T&M and Labor Hour Contracts for Commercial Services
Recently, the DAR Council issued an interim rule, implementing Section 805 of the Fiscal Year 2008 National Defense Authorization Act, revising the Defense Federal Acquisition Regulation Supplement (DFARS) to limit use of T&M and Labor Hour contracts for acquisition of commercial services to the following limited circumstances: 1. Services in support of a commercial item 2. Emergency repair services Any other use of T&M or Labor Hour contracts for acquisition of commercial services by DOD or NASA requires that the agency head approve the action. Here is the interim rule.
DOD Commercial Item Handbook 2.0
Yesterday DOD released version 2.0 of its Commercial Item Handbook in draft form, seeking comments and input from the public. The Handbook, initially issued in 2001, provides guidance to DOD Contracting Officers regarding how to acquire commercial items and services. The draft can be viewed here.
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Delay in Recovery Act Reporting Tool Gives DOD Contractors a Break
On July 10, 2009 DOD contractors were given a break via issuance of a "class deviation" from the requirements to report expenditures related to receipt of funds under the American Recovery and Reinvestment Act (ARRA). The class deviation, issued by Shay Assad (Director, Defense Procurement and Acquisition Policy), informed DOD contractors that they were exempt from the reporting requirements of contract clause FAR 52.204-11 (American Recovery and Reinvestment Act -- Reporting Requirements) for a period of 90 days. Instead of making their first report regarding how they used the ARRA funds received on July 10th, DOD contractors will now have to make their first report on October 10th. Mr. Assad attributed the delay to the on-line reporting tool (www.federalreporting.gov) not being ready as planned. Mr. Assad reminded DOD contractors, however, that even though ARRA reporting requirements were being delayed, contractors should still maintain the required data. See Mr. Assad's memo here.
Inverted Corporations
Federal Acquisition Circular (FAC) 2005-34, issued July 1, 2009, contains a new interim rule prohibiting the US Government from contracting with "inverted corporations". As defined in the rule, an inverted corporation is one that "that used to be incorporated in the United States, or used to be a partnership in the United States, but now is incorporated in a foreign country, or is a subsidiary whose parent corporation is incorporated in a foreign country." As the rule explains, the reason a corporation would do this is to avoid United States taxes on business income generated in foreign countries. Countries such as Bermuda, Barbados, and the Cayman Islands are well known tax havens; but the statute is not restricted to just those countries however. Another term in wide use for these corporations is ‘‘corporate expatriate’’. Congress has enacted both contract statutes and tax statutes to try to discourage corporations from expatriating themselves, and this new rule implements those statutory requirements in the FAR. The complete rule (and promulgating comments) can be perused here.
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