By: Nicholas Williamson on February 16th, 2022
Federal Acquisition Regulation (FAR) 101
Government | Contracts | 5 Min Read
If you have dealt with the federal government before whether it’s for taxes, going to the DMV, or applying for a grant, you know that you have to abide by a set of rules and follow a specific procedure. The same goes for federal contracting. Contractors and government agencies follow the Federal Acquisition Regulation (FAR) when they want to sell or buy through government contracts. The FAR is essentially the “rulebook” for federal procurement. While there are several important clauses in the FAR, we’ll highlight 4 clauses you should pay special attention to as a current or prospective GSA contractor.
What is the Federal Acquisition Regulation (FAR)?
The Federal Acquisition Regulation, also known as the FAR, establishes the rules the federal government and contractors have to follow to purchase and sell goods and services through contracts. The FAR was first established on April 1, 1984 and has been updated periodically through the years. Currently, the FAR is regulated by the General Services Administration (GSA), The Department of Defense (DoD), and the National Aeronautics and Space Administration (NASA).
The reason for the FAR is to have uniform regulations and procedures for federal agencies to adhere to during the procurement process. The regulation provides a streamlined purchasing procedure, so all contracts procured from the private sector are visible, fair, and open to all competition.
4 Important FAR Clauses for GSA Contractors
FAR 8.4 Federal Supply Schedules
Clause FAR 8.4 is important because it defines the ordering procedures for GSA Schedules. Within the clause, it defines “Ordering activity” as an activity that is authorized to place orders, or establish Blanket Purchase Agreements (BPA), against a GSA Multiple Award Schedule contract.
Eligible Entities or “Authorized Buyers” under the GSA Schedules program include:
- Federal agencies (military and civilian)
- Mixed ownership government corporations as identified in 31 U.S.C. § 9101
- District of Columbia
- Qualified nonprofit agencies for the blind or other severely handicapped individuals for use in making or providing an approved commodity or service to the government
- State and local governments under certain Schedule purchases
Products offered on GSA contracts are listed at fixed prices. Services offered are priced either at hourly rates, or at a fixed price for performance of a specific task (e.g., installation, maintenance, and repair). GSA has already determined the prices of supplies and fixed-price services, and rates for services offered at hourly rates, under GSA Schedule contracts to be fair and reasonable. Therefore, ordering activities are not required to make a separate determination of fair and reasonable pricing, except for a price evaluation as required by FAR 8.405-2(d). By placing an order against a GSA contract using the procedures in 8.405, the ordering activity has concluded that the order represents the best value.
FAR 2.101 Definitions
Clause FAR 2.101 is a useful clause to know for contractors because it defines what a commercial item or service is, as well as what a commercial price list is. Specifically, when defining a “commercial” product, it gives context for how GSA substantiates products.
Within the FAR clause, GSA defines a product as:
“A product, other than real property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and has been sold, leased, or licensed to the general public; or has been offered for sale, lease, or license to the general public.”
When going through the GSA Schedule proposal, you will need to provide invoicing to outline what products you would like to offer to GSA. This ties into the clause listed above because the GSA Contracting Officer (CO) who is reviewing your GSA Schedule offer can use those invoices to establish two things:
First, that you have sold these products commercially, and that the federal government won’t be the first customer for this new product.
Secondly, this also establishes a commercial price list for those products. Further down in the clause it defines a commercial price list as a:
“a price included in a catalog, price list, Schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.”
This allows you to create a commercial price list for your GSA Schedule offer which establishes these products have been sold before, and that you have readily available sources for that product. If you cannot prove these two things, then you cannot get your own prime GSA Schedule.
FAR 52.225-5 Trade Agreements
FAR 52.225-5 states that products and services sold through the GSA Schedules program must be compliant with the Trade Agreements Act (TAA). TAA compliance means that the “final products” you sell through your GSA contract as a product manufacturer or GSA reseller must be “substantially transformed” in the U.S. or another country designated by the TAA. “Substantially transformed” is defined in the FAR as an item that was made:
“into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.”
The FAR outlines 4 categories of countries considered acceptable for government procurement. They are:
- World Trade Organizations Government Procurement Agreement (WTO HGPA) Countries
- Free Trade Agreement (FTA) countries
- Least developed countries
- Caribbean Basin countries
Before you start your GSA Schedule proposal, you should check to make sure the country of origin for your offerings is on the list of TAA designated countries.
FAR 52.216 Economic Price Adjustment-Labor and Material
The next important FAR Clause is FAR 52.216-4 Economic Price Adjustment-Labor and Material. This is another important FAR Clause that contractors must abide by day in and day out in regards to their GSA contract.
This clause allows contractors to raise their rates and prices depending on increases to their commercial pricelist. During this process, contractors are only allowed three increases during their contract period. Increases are requested after the first 30 days of the contract period and prior to the last 60 days of the contract period. The government can put thresholds on the requested increases, and for GSA, those increases cannot exceed 10%. You can utilize these rules to increase your sales and ensure that your GSA contract stays compliant.
Complying with Your GSA Schedule
Contractors can utilize the FAR to ensure that they are staying compliant and abiding by all federal rules and regulations. The FAR enables federal agencies to procure your products and services directly from your GSA Schedule and ensure they are getting the best commercial price. It also allows for easy, transparent, and mutually beneficial procurement from the public to the private sector.
If you want to learn more about maintaining your GSA Schedule and following proper procedures, check out our blog “How to Maintain Your GSA Schedule Contract: An Essential Checklist.” If you’re unsure you qualify for a GSA Schedule or want to make sure you are properly following the FAR and successfully managing your current contract, we are here to help.