80 FR 15011 - Notice of a Class Deviation To Address Commercial Supplier Agreement Terms Inconsistent With Federal Law

GENERAL SERVICES ADMINISTRATION

Federal Register Volume 80, Issue 54 (March 20, 2015)

The Office of Acquisition Policy is requesting feedback on a proposed class deviation to the Federal Acquisition Regulation (FAR) and the General Services Acquisition Regulation (GSAR) to address common Commercial Supplier Agreement terms that are inconsistent with or create ambiguity with Federal law. This class deviation will go into effect forty-five (45) days from the date of publication of this RFI in the Federal Register, after considering comments received.

[Federal Register Volume 80, Number 54 (Friday, March 20, 2015)]
[Notices]
[Pages 15011-15013]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-06422]


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GENERAL SERVICES ADMINISTRATION

[NOTICE-MVA-2015-01; Docket No. 2015-0002; Sequence No. 4]


Notice of a Class Deviation To Address Commercial Supplier 
Agreement Terms Inconsistent With Federal Law

AGENCY: Office of Government-wide Policy, General Services 
Administration.

ACTION: Request for Information (RFI).

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SUMMARY: The Office of Acquisition Policy is requesting feedback on a 
proposed class deviation to the Federal Acquisition Regulation (FAR) 
and the General Services Acquisition Regulation (GSAR) to address 
common Commercial Supplier Agreement terms that are inconsistent with 
or create ambiguity with Federal law. This class deviation will go into 
effect forty-five (45) days from the date of publication of this RFI in 
the Federal Register, after considering comments received.

DATES: Comments: Interested parties should submit written comments to 
the Regulatory Secretariat Division at one of the addresses shown below 
on or before April 20, 2015.

ADDRESSES: Submit comments in response to Notice--MVA-2015-01 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``Notice--
MVA-2015-01''. Select the link ``Comment Now'' that corresponds with 
``Notice--MVA-2015-01'' and follow the instructions provided on the 
screen. Please include your name, company name (if any), and ``Notice--
MVA-2015-01'' on your attached document.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Ms. Flowers/Notice--MVA-2015-01, 1800 F 
Street NW., 2nd Floor, Washington, DC 20405-0001.
    Instructions: Please submit comments only and cite Notice--MVA-
2015-01 in all correspondence related to this case. All comments 
received will be posted without change to http://www.regulations.gov, 
including any personal and/or business confidential information 
provided.

FOR FURTHER INFORMATION CONTACT: Mr. James Tsujimoto, Program Analyst, 
Acquisition Policy Division, at telephone 202-208-3585 or email 
[email protected].

SUPPLEMENTARY INFORMATION: 

Background

    GSA defines Commercial Supplier Agreements as terms and conditions 
that are customarily offered to the public by vendors of supplies or 
services that meet the definition of ``commercial item'' and are 
intended to create a binding legal obligation on the end user. 
Commercial Supplier Agreements are particularly common in information 
technology acquisitions, including acquisitions of commercial computer 
software and commercial technical data, but they may apply to any 
supply or service.
    Customarily, commercial item supplies and services are offered to 
the public under standard agreements that may take a variety of forms, 
including license agreements, terms of service (TOS), terms of sale or 
purchase, and similar agreements. These customary, standard Commercial 
Supplier Agreements typically contain terms and conditions that make 
sense when the purchaser is a private party but are inappropriate when 
the purchaser is the Federal Government.
    The existence of Federally-incompatible terms in contractors' 
standard Commercial Supplier Agreements has long been recognized in FAR 
27.405-3(b), which is limited to the acquisition of commercial computer 
software. This clause advises contracting officers to exercise caution 
when accepting a contractor's terms and conditions. However, the use of 
Commercial Supplier Agreements is not limited to information technology 
acquisitions; Commercial Supplier Agreements have become ubiquitous in 
a broad variety of contexts, from travel to telecommunications to 
financial services to building maintenance systems, including purchases 
below the simplified acquisition threshold.
    Discrepancies between Commercial Supplier Agreements and Federal 
law or the Government's needs create recurrent points of inconsistency. 
Below are several examples of incompatible clauses that are commonly 
found in Commercial Supplier Agreements:
     Jurisdiction or venue clauses may require that disputes be 
resolved in a particular state or Federal court. Such clauses conflict 
with the sovereign immunity of the US Government and cannot apply to 
litigation where the US Government is a defendant because those 
disputes must be heard either in US District Court (28 U.S.C. 1346) or 
the US Court of Federal Claims (28 U.S.C. 1491).
     Automatic renewal clauses may automatically renew or 
extend contracts unless affirmative action is taken by the Government. 
Such clauses that require the obligation of funds prior to 
appropriation violate the restrictions of

[[Page 15012]]

the Anti-Deficiency Act, 31 U.S.C. 1341(a)(1)(B).
     Termination clauses may allow the contractor to 
unilaterally terminate a contract if the Government is alleged to have 
breached the contract. Termination clauses and other clauses that 
permit substantive unilateral modification by the contractor are not 
permitted. Additionally, Government contracts are subject to the 
Contract Disputes Act of 1978 (41 U.S.C. 601-613). The Contract 
Disputes Act requires a certain process for resolving disputes, 
including terminations, and that the ``Contractor shall proceed 
diligently with performance of this contract, pending final 
resolution'' under the terms of the FAR Disputes clause at 52.233-1.
    As a result, Industry and Government representatives must undergo 
lengthy and costly contract term negotiations in order to avoid 
Commercial Supplier Agreement terms that conflict or are incompatible 
with Federal law. Both sides may expend considerable resources on legal 
counsel and negotiations before coming to agreement.
    Moreover, the current order of precedence contained in the 
commercial item clause at FAR 52.212-4 potentially allows commercial 
agreements to supersede the terms of Federal contracts, especially in 
those areas where Federal law is implicated indirectly. As a result, 
industry and Government representatives must spend significant time and 
resources tailoring Commercial Supplier Agreements to comply with 
Federal law.

Discussion

    GSA intends to issue a class deviation to clarify the order of 
precedence in the commercial item clause by explaining that the terms 
of the commercial item clause control in the event of a conflict with a 
Commercial Supplier Agreement.
    The class deviation will also implement standard terms and 
conditions to minimize the need for negotiating the terms of Commercial 
Supplier Agreements on an individual basis. The new clause will make 
unenforceable any conflicting or inconsistent Commercial Supplier 
Agreement terms that are addressed in the class deviation, so long as 
an express exception is not authorized elsewhere by Federal statute. 
GSA has identified fifteen (15) points of inconsistency with Federal 
law that are addressed by this class deviation. Below is a list of the 
fifteen points of inconsistency and a summary of how they will be 
addressed by the class deviation:
    1. Definition of contracting parties: Contract agreements are 
between the commercial supplier or licensor and the U.S. Government. 
Government employees or persons acting on behalf of the Government will 
not be bound in their personal capacity by the Commercial Supplier 
Agreement.
    2. Contract formation: Commercial Supplier Agreements may be 
integrated into a contract, so long as the terms are included verbatim 
and are not incorporated by reference. The terms of the deviated clause 
and other identified elements will supersede any conflict with the 
Commercial Supplier Agreement. This order of precedence will allow for 
the incorporation of Commercial Supplier Agreements, with certain 
clauses being stricken as unenforceable, without the need to 
individually negotiate agreements. ``Click-wrap'', ``Browse-wrap'' and 
other such mechanisms that purport to bind the end-user will not bind 
the Government or any Government authorized end-user.
    3. Patent indemnity (contractor assumes control of proceedings): 
Any clause requiring that the commercial supplier or licensor control 
any litigation arising from the government's use of the contractor's 
supplies or services is deleted. Such representation when the 
Government is a party is reserved by statute for the U.S. Department of 
Justice.
    4. Automatic renewals of term-limited agreements: Due to Anti-
Deficiency Act restrictions, automatic contract renewal clauses are 
impermissible. Any such Commercial Supplier Agreement clauses are 
unenforceable.
    5. Future fees or penalties: Future fees--such as attorney fees, 
cost or interest--may only be awarded against the U.S. Government when 
expressly authorized by statute (e.g. Prompt Payment Act).
    6. Taxes: Any taxes or surcharges that will be passed along to the 
Government will be governed by the terms of the underlying contract. 
The cognizant contracting officer must make a determination of 
applicability whenever such a request is made.
    7. Payment terms or invoicing (late payment): Any Commercial 
Supplier Agreement terms that purport to establish payment terms or 
invoicing requirements that contradict the terms of the Government 
contract will be unenforceable. Discrepancies found during an audit 
must comply with the invoicing procedures from the underlying contract.
    8. Automatic incorporation/deemed acceptance of third party terms: 
No third party terms may be incorporated into the contract by 
reference. Incorporation of third party terms after the time of award 
may only be performed by bilateral contract modification with the 
approval of the cognizant contracting officer.
    9. State/foreign law governed contracts: Clauses that conflict with 
the sovereign immunity of the U.S. Government cannot apply to 
litigation where the U.S. Government is a defendant because those 
disputes must be heard either in U.S. District Court or the U.S. Court 
of Federal Claims. Commercial Supplier Agreement terms that require the 
resolution of a dispute in a forum other than that expressly authorized 
by Federal law are deleted. Statutes of limitation on potential claims 
shall be governed by U.S. Government law.
    10. Equitable remedies, injunctions, binding arbitration: Equitable 
remedies, injunctive relief and binding arbitration clauses may not be 
enforced unless explicitly authorized by agency guidance or statute.
    11. Unilateral termination of Commercial Supplier Agreement by 
supplier: Commercial suppliers may not unilaterally terminate or 
suspend a contract unless the supplies or services are generally 
withdrawn from the commercial market. Remedy from contractual breach by 
the Government must be pursued under the Contract Disputes Act.
    12. Unilateral modification of Commercial Supplier Agreement by 
supplier: Unilateral changes of the Commercial Supplier Agreement are 
impermissible and any clause authorizing such changes is unenforceable.
    13. Assignment of Commercial Supplier Agreement or Government 
contract by supplier: The contract, Commercial Supplier Agreement, 
party rights and party obligations may not be assigned or delegated 
without express Government approval. Payment to a third party financial 
institution may still be reassigned.
    14. Confidentiality of Commercial Supplier Agreement terms and 
conditions: The content of the Commercial Supplier Agreement and the 
final contract pricing may not be deemed confidential. The Government 
may retain other marked confidential information as required by law, 
regulation or agency guidance, but will appropriately guard such 
confidential information.
    15. Audits (automatic liability for payment): Discrepancies found 
during an audit must comply with the invoicing procedures from the 
underlying contract. Disputed charges

[[Page 15013]]

must be resolved through the Disputes clause. Any audits requested by 
the commercial supplier or licensor will be performed at supplier or 
licensor's expense.
    This class deviation will apply to all new awards for GSA 
acquisitions for commercial supplies or services. Existing contracts 
will be required to incorporate the new terms whenever an option period 
is exercised or the contract is otherwise modified.
    This effort will reduce risk by uniformly addressing common 
unacceptable Commercial Supplier Agreement terms, facilitate efficiency 
and effectiveness in the contracting process by reducing the 
administrative burden for the Government and industry, and promote 
competition by reducing barriers to industry, particularly small 
businesses.

    Dated: March 17, 2015.
Jeffrey A. Koses,
Senior Procurement Executive, Office of Acquisition Policy, Office of 
Government-wide Policy.
[FR Doc. 2015-06422 Filed 3-19-15; 8:45 am]
 BILLING CODE 6820-61-P