HEALTH AFFAIRS

1. TRICARE Management Activity HEALTH AFFAIRS DoD Rules Regarding Non-DoD Contracting Offices

2. Interagency Acquisition Support and the Economy Act • Statutory authority is required to place an order with a Non-DoD agency for goods or services (including acquisition support), and to pay the associated cost • If specific statutory authority does not exist, the default will be the Economy Act (31 U.S.C. 1535) • Additionally, all Intra-DoD support must comply with the Economy Act • Under the Economy Act, the contracting agency: • Must award a contract before funds expire • Cannot retain funds past their expiration • Cannot “make a profit”

3. Interagency Acquisition Support and the Economy Act (continued) • Some contracting agencies have special legal authority • Examples: GovWorks and GSA IT Fund • They can award a contract after funds have expired • They don’t have to return funds upon expiration • They must be self-supporting and can make a profit • Their rules of operation tend to create internal and external conflicts of interest • DoD’s past use (abuse) of these Non-DoD contracting agencies caused great concern and attracted the attention of Congress • This has resulted in ever-tightening controls and restrictions on how DoD could use Non-DoD contracting agencies

4. Recent Background • Over the last few years Congress and DoD have relentlessly cracked down on the use of Non-DoD Contracting Offices • Section 854 of the FY05 NDAA – Procurements Made Through Contracts of Other Agencies • Joint OUSD(Comptroller) / OUSD(AT&L) memo dated October 29, 2004 • OUSD(Comptroller) memo dated March 24, 2005 • Section 811 of the FY06 NDAA – Internal Controls for Procurements on Behalf of the Department of Defense • USD(Comptroller) memo dated March 27, 2006 • USD(Comptroller) memo dated October 16, 2006 • DoD Memoranda of Agreement • Joint USD(Comptroller) and USD(AT&L) memo dated June 14, 2007

5. FY05 NDAA – Section 854Procurements Made Through Contracts of Other Agencies • Congressional Intent - insure that DoD increases its oversight on: • the use of non-DoD contract vehicles, and • contracts awarded by Non-DoD agencies on behalf of DoD • Statutory Requirement: DoD must establish procedures for reviewing and approving the use of non-DoD contracts before DoD activities procure goods or services through a contract entered into by an agency outside the Department of Defense for an amount greater than the simplified acquisition threshold (currently $100,000).

6. Joint Comptroller/AT&L Memo29 Oct 04 • To comply with Section 854 of the FY05 NDAA, USD (Comptroller) and USD (AT&L) issued a joint memorandum subject: Proper Use of Non-DoD Contracts dated October 29, 2004 • Joint memorandum directs that procedures be put in place for reviewing and approving the use of Non-DoD contract vehicles for amounts above the simplified acquisition threshold • Applies to orders placed by DoD contracting offices “direct acquisitions” and to “assisted acquisitions” i.e. MIPRS sent to Non-DoD contracting offices, both under the Economy Act and not under the Economy Act.

7. Joint Comptroller/AT&L Memo 29 Oct 04 (continued) • Procedures outlined in joint memorandum include: • Evaluate whether using a Non-DoD contract is in the best interests of DoD, considering such factors as: • Satisfying customer requirements • Schedule • Cost effectiveness (taking into account discounts and fees) • Contract administration • Determine that tasks to be accomplished are within scope of the contract • Review funding to ensure it is used IAW appropriation limitations • Provide unique terms, conditions and requirements to the assisting agency for incorporation into the order/contract to comply with all applicable DoD-unique statutes, regulations, directives and other requirements

8. OUSD(Comptroller) Memo Mar 24, 2005 • OUSD(Comptroller) Memo, subject: Proper Use of Interagency Agreements for Non-Department of Defense contracts Under Authorities Other Than the Economy Act, dated March 24, 2005 • Directed a 100% review of interagency agreements • Close out completed agreements • Review and return unobligated balances • Expired funds shall not be available for work outside the original interagency agreement

9. OUSD(Comptroller) Memo Mar 24, 2005 (continued) • For goods: Expired funds to be deobligated and returned unless all of the following criteria are met: • The order was made during the period of availability of the funds; • The order was for an item that, solely because of delivery, production lead time, or unforseen delays, could not be delivered within the period of availability of those funds.

10. OUSD(Comptroller) Memo Mar 24, 2005 (continued) • For services: Expired funds to be deobligated and returned unless all of the following criteria are met: • The order was made during the period of availability of the funds; • The order was specific, definite and certain, with specificity similar to that found in contractual orders; and • In the case of severable services, the performance period does not exceed one year. • DoD expired funds may not be used by a servicing agency to enter into a severable services contract. However, DoD expired funds may continue to be used for a severable service contract, properly entered into by the servicing agency before the funds expire, provided the period of contract performance does not exceed one year.

11. Severable and Non-Severable Services • A service contract is nonseverable if the service represents a single undertaking, producing a single or unified outcome, product or report that cannot be subdivided for separate performance in different fiscal years. (Example – a contract to re-carpet or paint an office is non-severable) • A service is severable if it is continuing and recurring in nature or can be separated into components that independently meet a separate need of the government. Most program support contracts are continuing and recurring in nature, and therefore are severable requirements.

12. FY06 NDAA – Section 811 • FY06 NDAA Section 811 – Internal Controls for Procurements on Behalf of the Department of Defense • Statutory Requirement: Mandatory IG reviews on compliance with Defense procurement requirements • Conduct joint IG reviews with non DoD Agencies NLT Mar 15, 2006 • If deficiencies are found, conduct second joint review NLT Jun 15, 2007 • If deficiencies are again found: • DoD may not order, purchase, or otherwise procure property or services in an amount greater than $100,000. • The above limitation does not apply if the USD(AT&L) issues a determination that it is necessary to continue to procure property and services through non-compliant agency.

13. USD(Comptroller) Memo Mar 27, 2006 • USD(Comptroller) Memo, subject: Proper Use of Interagency Agreements with Non-Department of Defense Entities Under Authorities Other Than the Economy Act, dated March 27, 2006 • Directed a 100% review of interagency agreements • Close out completed agreements • Expired funds to be deobligated and returned unless they meet the criteria identified in the OUSD(Comptroller) Memo, subject: Proper Use of Interagency Agreements for Non-Department of Defense contracts Under Authorities Other Than the Economy Act, dated March 24, 2005.

14. USD(Comptroller) Memo Oct 16, 2006 • “Non-Economy Act Orders” USD (Comptroller) Memorandum dated October 16, 2006 • Requires DoD Contracting Officer review of all Non-Economy Act orders > $500,000 • Very few DoD Contracting Offices are willing to execute these reviews • Those that are, are requiring an “air tight” business case before signing off on these reviews • Must analyze all alternatives and clearly articulate why DoD alternatives won’t work

15. Memoranda of Agreement • DoD has entered into two MOAs, each with their own restrictions: • MOA between DoD and GSA • Dated December 6, 2006 • Requires DoD Contracting Officer review of “work before the work is accepted by GSA.” • Applies to all orders sent to the GSA (no minimum $ amount specified) • MOA Between DoD and Department of the Interior (DoI) • Dated March 6, 2007 • Requires DoD Contracting Officer review of “any requirement valued in excess of $500,000” • Applies to both GovWorks and NBC/Fort Huachuca

16. Joint memo USD(Comptroller) & USD(AT&L)14 Jun 07 • Joint memo from USD (Comptroller) and USD (AT&L) • Dated June 14, 2007 • Announced results of second joint IG review of DoI contracting activities (IAW Section 811 of FY06 NDAA): • DoI Southwest Branch of National Business Center (Ft Huachuca) • Substantial improvement • DoI GovWorks • Has “not adequately improved funding and contracting practices.” • Directed that no requirements in excess of $100,000 be sent to GovWorks unless a USD(AT&L) determination IAW FY06 NDAA, Section 811(d) has been completed

17. Bottom Line • Don’t rely on non-DoD acquisition support • DoD Contracting Officer reviews are required for: • All actions greater than $500,000 sent to a non-Economy Act contracting office IAW Comptroller memo dated 16 Oct 06 • All actions greater than $500,000 sent to DoI contracting offices (NBC or GovWorks) IAW MOU dated 6 Mar 07 • All actions, regardless of amount, sent to GSA contracting offices IAW MOU dated 6 Dec 06 • Use of GovWorks requires a USD(AT&L) determination, and therefore this option is “off the table” • DoD Contracting Officer reviews are very rarely being issued • Plan immediately to divert all current non-Economy Act orders and all GSA or DoI acquisitions to DoD contracting offices