Details of the New Procurement Law

January 1995

PROCUREMENT REFORM GUIDE

Details of the New Procurement Law

The Federal Acquisition Streamlining Act creates a uniform procurement system.

O"ne of the chief goals of the 1994 Federal Acquisition Streamlining Act is to create a uniform procurement system in which civilian and defense agencies are governed by the same statutes.

In general, that has meant extending rules formerly applicable only to defense acquisitions to civilian agencies as well. Civilian agencies, for instance, have new requirements regarding disclosure of evaluation factors in bid solicitations. Contract cost principles newly extended to civilian agencies ensure that activities such as lobbying, advertising and entertaining will not be funded by taxpayers. And whistleblower protections, similar to those already available for employees of DoD contractors, are now in place for company employees working on civilian contracts.

In addition, both civilian and Defense Department agencies now are required to focus on performance-based management concepts for major acquisitions. They have to establish cost, performance and schedule goals and take corrective action when they do not achieve 90 percent of these goals. Annual reports must be produced detailing progress in implementing the goals.

The law requires the Executive Branch to establish a system of incentives-including awards-for exceptional performance in the acquisition workforce. And the Defense Department is required to define in regulations a simplified acquisition program cycle that is results-oriented. Principal provisions of the law are:

Simplified Acquisition Threshold

By modifying 15 statutes, the Federal Acquisition Streamlining Act removes nearly all restrictions on buys of less than $100,000. Instead of detailed "full and open competition" procedures currently required when making a purchase of over $25,000, agencies now can use simplified procedures for soliciting and evaluating bids. The law, which is expected to affect more than 46,000 contracts a year, will substantially reduce the amount of staff time spent on recordkeeping. It also will reduce costs for both the government and its suppliers.

The law raises the simplified acquisition threshold from $25,000 to $50,000. Once agencies start converting to electronic data interchange (see next section), the threshold can be raised to $100,000. If an agency fails to fully implement EDI after five years, its threshold would revert to $50,000. Full implementation is defined as using EDI for 75 percent of acquisitions above $2,500 and below $100,000.

Agencies using the government-wide EDI network will no longer have to publish notices of procurements in the Commerce Business Daily for contracts up to $100,000. Once an agency is using EDI for at least 75 percent of its eligible contracts, CBD notices will be required only for procurements over $250,000.

The new law also will allow the 83,000 holders of federal Visa cards to charge up to $2,500 worth of goods at a time (up to $20,000 per year), even if they don't work in procurement shops.

By allowing program officials to make such "micro-purchases" without going through contracting offices, the law is expected to speed acquisitions and reduce paperwork. As long as purchase prices are reasonable, such credit-card buys are exempt from competition requirements, small-business set-aside rules and Buy America stipulations. And government executives who make such purchases will not be subjected to complex procurement-integrity rules, such as restrictions on the kinds of jobs they may hold after leaving federal service.

Electronic Commerce

In October 1993, President Clinton issued a memorandum directing agency heads to streamline procurement through "electronic commerce" by January 1997. The central component of electronic commerce is a technology called electronic data interchange (EDI), the computer-to-computer exchange of business data between organizations over telephone lines in a standard electronic format.

By enabling computers to "talk" to each other, EDI allows organizations to generate, receive and process data with little or no human intervention. EDI networks can automatically update inventories, issue material releases against open purchase orders, invoice customers, pay suppliers, generate bills of lading and advise customers about shipping. The Administration predicts that electronic purchasing can cut federal procurement costs by 10 percent by 1997 and speed delivery times by a third.

The new procurement law reinforces the Administration's electronic-commerce initiatives by calling for creation of a government-wide EDI network-the Federal Acquisition Network (FACNET)-within five years. FACNET will enable the government to move from a labor-intensive paper-based procurement system to a cost-effective automated one.

The network also will open up the acquisition process to any business with a personal computer. This increased competition is expected to result in lower prices for goods and services.

Steven Kelman, administrator of the Office of Federal Procurement Policy, calls progress on electronic commerce an "unprecedented example of intergovernmental cooperation." With every federal agency now tied into EDI architecture, several are already conducting transactions, while others are working on electronic-commerce prototypes. However, more work is to be done in sorting out legal and security issues and in educating senior managers about EDI.

Agencies have a big incentive to hop on the EDI bandwagon: Lawmakers made the use of EDI a prerequisite to raising an agency's simplified acquisition threshold (see previous section) from $50,000 to $100,000.

Protests/Debriefings

In fiscal 1994, about 4,000 bid protests were filed with the General Accounting Office, the General Services Administration's Board of Contract Appeals (GSBCA), the district courts and the Court of Federal Claims. Some defend the protests, saying they help keep the procurement system honest by permitting vendors to trigger reviews of acquisitions they believe have been mishandled.

GSBCA chairman Stephen Daniels, for one, believes that protests have made procurements much more fair than they were before the 1985 Competition in Contracting Act gave statutory protest authority to GAO and made GSBCA the principal forum for protests regarding information-technology contracts.

But others in the federal procurement community complain that bid protests cost agencies too much money to defend and delay contract awards for months or even years. During that time, not only must agencies do without needed products or services, but workers in agency procurement shops are forced to focus their energies on defense preparation. Some vendors routinely build litigation costs into their bid-preparation figures-and eventually pass those costs on to federal customers.

As recommended by the National Performance Review, the new procurement-reform law authorizes GSBCA to dismiss frivolous protests and invoke sanctions against those who abuse protest procedures or bring protests in bad faith. It also requires public disclosure of any settlement that provides for a protest's dismissal and involves an agency payment.

OFPP's Kelman urges companies not to get the new law off to a bad start with lots of protests. He recommends a culture change: "Industry must take a stand against this kind of ambulance chasing and help create a system of decent behavior."

The Federal Acquisition Streamlining Act gives GAO and GSBCA exclusive jurisdiction over objections concerning termination or cancellation of contract awards. The law also makes advisory, rather than mandatory, GAO determinations that an executive branch agency pay a winning protestor's costs, such as fees for attorneys and expert witnesses.

Many believe the historically high volume of protests is due partly to inadequate debriefings to disappointed bidders. Some companies file protests just to get more information on why their offers were not accepted.

The new law requires that agencies notify all unsuccessful offerors of awards within three days of awarding contracts. Offerors then have three days to request debriefings. Within five days of receiving a request, agencies must offer debriefings that include overall rankings of all offerors and evaluated costs and technical ratings of the bids of the winning offer and the offeror being briefed.

Acceleration of the debriefing process is expected to reduce significantly the number of frivolous protests. Kelman suggests that agencies use debriefings as stepping stones to trying out alternative dispute resolution techniques (see box) if vendors have complaints about a contract award.

Commercial Products

Following up on recommendations made in the National Performance Review, the Federal Acquisition Streamlining Act encourages agencies to buy more off-the-shelf products instead of those designed to government-unique design specifications. It does this by expanding the definition of "commercial items" to include not only products customarily used by the general public but certain commercial products and services using evolving technology that may not be currently available in the commercial marketplace.

The law advocates the use of functional specifications in RFPs (requests for proposals)-explaining what the product should do-instead of nitty-gritty detailed specifications spelling out how it should do it.

In the past, many contractors have chosen not to do business with the government because of the burden of providing cost data on civilian contracts over $100,000 and defense contracts over $500,000. Recognizing this, the new law waives requirements that contractors submit certified data justifying prices on competitively awarded commercial contracts.

On non-competitively awarded commercial contracts, agencies can require such data only if price information on similar items sold in the commercial market is unavailable. The law also sets a $500,000 government-wide threshold under which cost data need not be submitted. The threshold is to be adjusted for inflation every five years.

For purchases of commercial products, the law waives prime contractor and subcontractor recordkeeping, reporting and compliance certification requirements under several statutes, including the Contract Work Hours and Safety Standards Act; the Drug-Free Workplace Act; the Clean Air Act; and the Federal Water Pollution Control Act. Commercial buys also are exempted from procurement-specific statutes enacted in the future unless such laws impose civil or criminal penalties.

The move to more commercial products is expected to slash product costs, minimize acquisition lead times and reduce the need for expensive R&D and product testing.

Past Performance

The Federal Acquisition Streamlining Act makes clear that it is both relevant and appropriate for an agency to consider a contractor's past performance in evaluating whether that contractor should receive future work. It also requires the Office of Federal Procurment Policy to publish guidance in this area.

Past performance takes into account everything from whether a vendor's products or services from previous federal contracts were delivered on time and within budget to whether a company did a good job of managing subcontractors. In addition to looking at workmanship, past-performance evaluations also include judgments on bidders' reputations for cooperative behavior.

Last January, 20 agencies pledged to make past performance part of evaluation criteria in solicitations on 61 contracts. The supply and services contracts, totalling $2.6 billion, cover everything from computer hardware support to paint brushes and garbage cans. The agencies are testing a variety of past-performance evaluation methods in these contracts to see which work best.

"This program has the potential for really changing the signals we send to suppliers about the expectations we have of them," says OFPP's Kelman. "We're moving the federal government in a much more commercial direction, where we set high standards for good performance from people who sell to us."

The program is expected to improve the quality of products and the timeliness of services, while reducing the amount of resources devoted to contract administration.

Prior to the pilot program, agencies used the past-performance criterion only very informally, and only to determine whether offerors had been responsive and responsible on earlier contracts. The criterion was omitted from official bid solicitations because it was thought to be too subjective. Some have voiced concern that federal program managers-whose jobs depend on the success of the contracts they're running-might not be unbiased in their appraisal of vendors.

In addition, new companies or those that have never held federal contracts have expressed concern that they might be discriminated against under the new criteria. Other companies are worried that they could be penalized for circumstances beyond their control-such as an agency changing its mind on technical specifications after a contract has been awarded. Questions have been raised as to whether companies' reputations could be, in effect, held hostage by agencies trying to cover up their own mistakes.

But Kelman doubts that past-performance programs would turn into modern-day blacklisting. He believes career government executives can be trusted to manage contracts fairly and to objectively rate performance.

To ensure that the government has sound methodology for evaluating vendors, an interagency team has developed a "Best Practices Guide" to explain federal past-performance philosophies and procedures. (See "Resources," page 12A.) In addition to the guidebook, the team is creating a system to collect and record past-performance information for subsequent use in the source-selection process.

Performance-Based Contracting

Federal agencies spend about $100 billion a year on contracts for services. Thousands of service contracts have been plagued by cost overruns, delays and technical problems.

The Federal Acquisition Streamlining Act attempts to solve problems associated with "contracting out" by introducing performance-based service contracting, which means defining the work to be performed in measurable, mission-related terms-in contrast to former Statements of Work that defined work in broad, imprecise terms.

Performance-based service contracting is expected to cut prices and improve contractor performance by encouraging innovative and efficient approaches to work. The procurement methodology also is expected to decrease the need for expensive and time-consuming contract audits and allow for the conversion of cost-reimbursement contracts to fixed-price contracts.

Last October, the Office of Federal Procurement Policy launched a pilot project to assess performance-based service contracting. Twenty-six agencies volunteered to convert 87 recompeted contracts worth approximately $1.2 billion to this methodology over the next year. The project was endorsed by four trade associations representing more than 1,000 companies.

Pilot Programs

The law authorizes the Office of Federal Procurement Policy to test alternative procurement techniques in 13 pilot acquisition programs. Six of them will be run by OFPP itself, five by the Defense Department and one each by the Federal Aviation Administration and NASA. Agencies may apply any of the new law's provisions concerning commercial products to non-commercial products procured under the pilots.

The five DoD programs are for direct-attack munitions, commercially derived aircraft, commercially derived engines, a fire-support tactical trainer and an aircraft training system.

FAA will test alternative acquisition procedures-such as limiting competition to prequalified sources-in implementing one of its modernization programs. NASA, meanwhile, will test alternative notice and publication requirements for procurements up to $500,000.

Several regulations, concerning matters such as prescreening of eligible sources and notice of contracting opportunities, will be waived in the OFPP test programs, which will affect procurements at all agencies. The new law authorizes OFPP to waive specified statutes for up to six additional pilots, which would permit agencies to test alternative and innovative procurement procedures over a four-year period. But OFPP may not implement the waivers until at least three years after enactment of the new law, and no agency will be allowed to participate until it has fully implemented electronic data interchange.

Task and Delivery Order Contracts

The Federal Acquisition Streamlining Act clarifies and, in some cases, changes procedures for awarding and administering task and delivery order contracts. Because of their flexibility, these contracts are popular vehicles for obtaining support services such as facilities management, computer systems analysis and maintenance. No firm quantities of services have to be specified. And when contract requirements change, agencies can simply issue new orders instead of conducting new procurements.

Some agencies award multiple task and delivery order contracts and then compete particular orders among contractors. The new law allows agencies to define their needs more generally when competing initial contracts and to save specificity for individual orders. This is expected to substantially reduce procurement lead times.

In addition, agencies are no longer required to conduct full and open competition for each order, but may limit the number of offers considered. However, agencies choosing not to conduct open competitions must appoint a senior official to handle contractor complaints and police the competition rules. This ombudsman must be able to act independently of the contracting officer.

The new law caps task and delivery order contracts for advisory and assistance services at five years. If an order increases the scope, period or maximum value of the contract under which it was issued, competitors are allowed to protest. But under no other circumstances are protests of task or delivery orders authorized.

In the case of contracts for advisory and assistance services, multiple awards are required if a contract exceeds three years and $10 million, unless a multiple award would be impractical.

Small and Disadvantaged Businesses

The new law contains several provisions aimed at improving small-businesses' access to federal contracts. It raises from $25,000 to $100,000 the dollar value of contracts to be reserved (with some exceptions) for small businesses. The law also creates a government-wide goal for women-owned small-business participation at not less than 5 percent of the total value of all prime and subcontract awards for each fiscal year.

Civilian agencies now are allowed to use set-asides and price differentials in making awards to small, disadvantaged (meaning, generally, minority-owned) businesses, as the Defense Department has been authorized to do for some time.

Purchases of less than $2,500 are excluded from the small-business reservation to enable government executives to make simplified purchases and credit-card purchases.

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