On November 29, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration published a proposed rule that would amend the Federal Acquisition Regulation (FAR) to adjust certain heavily used acquisition thresholds to account for inflation.

The proposed rule implements 41 U.S.C. § 1908, which requires inflation adjustments to the statutory acquisition thresholds every five (5) years. If adopted, the proposed rule will significantly increase certain acquisition thresholds.

    • The simplified acquisition threshold (SAT) allows contracting officers to solicit, offer, evaluate, and award contracts within the SAT dollar range, “in a simplified manner that maximizes efficiency and economy and minimizes burden and administrative costs for both the Government and industry[.]” (FAR 13.500). The proposed rule increases the SAT from $250,000 to $350,000.
    • The SAT for contracts to acquire commercial products or commercial services will increase from $7.5 million to $9.5 million. This means contracting officers may use simplified acquisition procedures as described above for contracts within that range, if the contracts are for the acquisition of commercial products (i.e., a product customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes) or commercial services (i.e., non-construction service contracts for support or related to a commercial product).
    • In general, all competitors, regardless of size, may compete for government contracts. However, to ensure small businesses have an opportunity to win contract awards, FAR Part 6 allows contracting officers to limit the competition pool to eligible participants in the SBA’s 8(a) Program. Currently, contracting officers may limit competition to eligible 8(a) Participants without further justification if the contract award is $25 million or less. The proposed rule increases this threshold from $25 million to $30 million.
    • FAR 19.702 states that a contractor who receives a contract (the “prime contractor”) with a value greater than the SAT must submit a subcontracting plan that prioritizes small and disadvantaged businesses for subcontracting opportunities. The proposed rule increases the minimum value of the contract award for this requirement from $750,000 to $950,000 for non-construction awards and from $1.5 million to $2 million for construction awards.

Additionally, in general contracting officers must allow “full and open competition” when soliciting contracts—which means any business may submit a proposal and compete, regardless of size or economic power. Agencies can make directed or sole-source awards (referred to in the FARs as an “other than full and open competition award”), however; which means they award the contract to an awardee without first going through a full and open competition process, by obtaining an approval for the “justification” (J&A). A “justification” is a statement of the (1) statutory authority that permits the agency to contract without providing for “full and open competition,” and (2) “sufficient facts and rationale to justify the use of the specific authority cited.” (FAR Part 6.3).

The authority permitted to approve a justification for a directed or sole-source contract award depends on the dollar value of the contract, based on tiered (increasing) threshold amounts. For tier 1, the contracting officer is authorized to approve a justification. For tier 2, the advocate for competition, designated by the contracting agency, is authorized to approve a justification. For tier 3, the head of the procuring activity is authorized to approve a justification. For tier 4, which encompasses only contracts offered by the DoD, NASA, and the Coast Guard, the senior procurement executive of the agency is authorized to approve a justification.

The proposed rule would increase J&A thresholds as follows:

    • J&A tier 1 from $750,000 to $950,000
    • J&A tier 2 from $15 million to $20 million
    • J&A tier 4 and 3, respectively, from $100 million to $150 million for the DoD, NASA, and the Coast Guard, and from $75 million to $95 million for all other contracts.

The FARs would also allow agencies to award directed or sole-source “requirements” contracts for delivery orders, or “single-award indefinite-delivery contracts” (FAR 16.504(c)(1)(ii)(D)(1)). This means the agency may award a delivery contract to a single business concern, which would supply the agency with a delivery order service for as long and as much as the agency may require. An agency may award these delivery contracts to a single business without obtaining a J&A, so long as the value of the contract does not exceed the threshold amount. The proposed rule would increase the threshold for requiring justifications of single-award indefinite-delivery contracts from $100 million to $150 million.

The proposed rule would have no effect on contracts valued at or below the SAT for commercial products and services, and it would not make changes to the Construction Wage Rate Requirements statute (Davis-Bacon Act), Service Contract Labor Standards statute, performance and payment bonds, or trade agreements thresholds. However, DoD, GSA, and NASA are separately proposing to adjust FAR acquisition-related thresholds, for which inflation adjustment is not mandated, to account for inflation in 2025.

The three agencies stated “the rule is intended to maintain the status quo by adjusting acquisition-related thresholds for inflation. The escalation of statutory acquisition-related thresholds is mandated by 41 U.S.C. 1908, including how to calculate the escalation.”

Interested parties may submit comments in response to these proposed rules, FAR Case 2024-001, by January 28, 2025, at https://www.regulations.gov.

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.

We also acknowledge the contributions of Molly Gunther, one of our Anchorage Law Clerks, in the development and drafting of this article

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