Existential Questions Surrounding H.R. 2511’s Proposed Online Marketplace
H.R. 2511, the “Defense Acquisition Streaming and Transparency Act” (“the bill”) was introduced on May 18, 2017. The bill seeks to streamline the Department of Defense’s (DoD) acquisition system, invest early in acquisition programs, and improve the acquisition workforce, and improve transparency in the acquisition system. Streamlining can be a powerful market facilitator, enhancing competition, increasing access to the commercial marketplace, and promoting innovation.
Last week, the Coalition submitted joint comments regarding the draft legislation to Representative Mac Thornberry (R-TX). The Coalition is supportive of the overall goals outlined in the bill, including many of the specific provisions. It is an important acquisition reform effort. As described below, however, the bill’s online marketplace provision, as set forth in Section 101, represents the most consequential procurement policy change in a generation. As such, it needs much more thorough examination and review by stakeholders across the procurement community, including, the Executive Branch, Congress, and American industry that serves government.
As currently written, Section 101 essentially authorizes the award of a non-competitive (read: no-bid) contract arguably to a single online marketplace provider through which DoD would acquire commercial products. Indeed, CICA is specifically waived for the negotiation and award of an online marketplace contract(s).
Section 101 also sets forth performance/functional criteria for the online marketplace. A review of the criteria raises significant questions as to whether there exists (or is envisioned) more than one entity that can serve as the online marketplace provider. Under these circumstances, the current language significantly risks creating a monopoly framework that will limit access to the DoD marketplace through a single-entry point, impacting thousands of commercial firms, and ultimately the government customer, in connection with access to innovation and competitive pricing.
Section 101 has implications for the application of existing procurement law for commercial product purchases through the new online marketplace. These provisions of law may include, but are not limited to, CICA, small business preferences, the Buy American Act, and the Trade Agreements Act. It is unclear, however, whether the current language actually waives these statutory requirements for the online marketplace, but if it does, it would create a new, separate definition/category of commercial items distinct from the Federal Acquisition Streamlining Act’s (FASA’s) commercial item definition, essentially resulting in parallel commercial item universes. Under these circumstances, the bill raises fundamental questions as to which government-unique requirement should or should not be waived for the acquisition of commercial products and services, and under what circumstances.
Another issue raised by Section 101 is its apparent authorization of the online marketplace provider to set the terms of entry for suppliers seeking to sell to the DoD. Language included in the current version of Section 101 provides that the standard terms and conditions of the online marketplace shall apply to all transactions, and the DoD cannot require an online marketplace provider to modify its those standard terms and conditions. This language is a significant policy change, as it cedes decisions regarding access to the federal marketplace from the government to the online provider(s) that will exercise broad market powers.
Finally, Section 101 raises significant questions regarding the security, management, use, and ownership of the online marketplace data. For example, is the online marketplace provider allowed to use the government’s transactional data for its own commercial purposes? If so, can the online provider use the data to compete against the suppliers utilizing the online marketplace? Under normal circumstances, such a situation likely would be considered an organizational conflict of interest by the government, creating an unfair competitive advantage for the online provider, however, Section 101 contains language in several places stating that the marketplace operates notwithstanding existing law.
The foregoing represents some of the questions/issues raised by the current Section 101 language. As more and more stakeholders examine the language, additional comments, question, and issues are being raised, which we believe are fair and should be addressed in a collaborative, positive manner. The streamlining goals sought by the bill and Section 101 are important and should not fall victim to issues of draftsmanship or incomplete communication. Rather, all stakeholders need to work together to achieve reform that is consistent with the foundational procurement policy thereby ensuring that a level playing field exists across the federal market. We look forward to working with all stakeholders towards such a streamlined, open, fair, and competitive commercial marketplace.
On Tuesday, June 19, Federal News Radio published an article describing recent trends in multiple award contracts (MACs). Although there were approximately 2653 MACs government-wide in 2016, the use of the contracting vehicle is down 8% since 2012. Overall spending on MACs in 2016, however, was up $5 billion over the previous year.
This 5-year trend coincides with requirements implemented by the Office of Management and Budget (OMB) in 2012 related to the submission of business cases for any new MAC valued in excess of $50 million over its lifespan. Last week, OMB issued a memorandum that provides new guidance aimed at reducing agency burden related to the business case requirements. Specifically, the guidance seeks to streamline business cases from 10-15-pages down to 3-pages. In addition, the guidance provides a new, 4-step approach for agencies to use when assessing whether to obtain or renew a MAC:
- Informed Analysis
Agencies will use relevant performance and pricing information on existing contracts, available through the Federal Acquisition Gateway, to conduct informed reviews
- Upfront Engagement
Based on its review, agencies will justify the creation or renewal of a MAC using an OMB provided template.
- Facilitated Collaboration
OMB will share the template provided by agencies with relevant stakeholders, including the relevant Federal Category Manager.
- Optimization Results
Agencies who chose not to use existing contracts will develop policies mandating the internal use of their new vehicle. In addition, they will provide data related to their vehicle to the relevant e-services and OMB.
OMB plans to pilot this new approach beginning this August, with an assessment of its performance no later than March 2019. OMB believes that this new approach will build upon its 2012 requirements and further address contract duplication.
Earlier this week, Federal Computer Week reported that the American Technology Council held its first meeting on Monday, June 19, to discuss opportunities to promote the secure, efficient, and economical use of IT by the Federal government. The Council brought together technology executives from both in and outside of government for ten “working group” sessions covering a wide range of topics, including, but not limited to: purchasing and contract reform, cloud computing, and cybersecurity.
Notably, during the discussion of purchasing and contracting reform, technology leaders discussed:
- Specific areas of government purchasing and contracting requirements to improve
- How the Federal procurement process may be modified to encourage innovative solutions to enter the marketplace
- How to facilitate a robust ecosystem of large, medium, and small technology companies to work on government services
To access the agenda from the Technology Council’s meeting, click here.
In accordance with the Enforcing the Regulatory Reform Agenda Executive Order, the General Services Administration (GSA) has published a request for comments seeking input on acquisition regulations, policies, standards, business practices, and guidance that may be appropriate for repeal, replacement, or modification. In particular, GSA is looking to identify regulations that inhibit job creation; that are outdated, unnecessary, or ineffective; and that impose excessive costs.
GSA is especially interested in feedback on topics such as evergreen, price adjustments, catalogs, Transactional Data Reporting, the Price Reduction Clause, and the Commercial Sales Practices format. Members are encouraged to provide any feedback they may have to Aubrey Woolley by Friday, July 7, for inclusion in the Coalition’s comments.
Last week, that the General Services Administration (GSA) announced that more than 500 qualified small business industry partners were added to the 8(a) STARS II Governmentwide Acquisition Contract (GWAC). With more than 3,200 task order awards, as well as $5.3 billion in sales since 2011, the 8(a) STARS II GWAC provides an abundance of opportunity for small businesses.
The scope of the 8(a) STARS II GWAC centers on four functional areas:
- Custom Computer Programming Services (NAICS 541511)
- Computer Systems Design Services (NAICS 541512)
- Computer Facilities Management Services (NAICS 541513)
- Other Computer Related Services (NAICS 541519)
This contract is available for ordering through August 30, 2021, with performance through August 30, 2024, and includes a total of over 800 skilled IT service providers. The 8(a) STARS II GWAC aligns with the IT Services Hallway within Category Management on the acquisition gateway.
The 8(a) STARS II GWAC awardee list may be accessed here.
Last Tuesday, June 14, the Government Accountability Office (GAO) published a report detailing their recent review of the Department of Veterans Affairs’ (VA) pharmacy system. Pursuant to a provision in Senate Report 114-57, GAO is required to examine how the VA acquires and utilizes a pharmacy system and determine whether the system is:
- Functional and enables the viewing, sharing, and transferring of data between pharmacy locations
- Interoperable with the Department of Defense’s (DoD) system
- Incorporates industry practices
GAO found that the VA has improved its interoperability with DoD and its pharmacy system has adopted the following three of six practices identified by the healthcare industry:
- Other medications can be ordered electronically
- Checks for drug-to-drug and drug-allergy interactions can be run for prescriptions
- Tracks the dispensing of controlled drugs
GAO, however, concluded that the VA system is still limited in its ability to share information and support the ability of clinicians to make decisions about patient prescriptions efficiently. Based on their findings, GAO made six recommendations, including but not limited to, update VA systems to enable complete access to medication data, implement additional industry practices, and assess the extent to which interoperability with DoD impacts transitioning service members.
On Thursday, June 15, Government Executive published an article detailing recent comments made by Linda McMahon, Administrator of the Small Business Administration (SBA), regarding recent efforts to identify opportunities to increase the efficiency and effectiveness of SBA programs. In particular, Administrator McMahon described how the SBA is working to streamline their certification process to be more user friendly and easier to understand.
In addition, Administrator McMahon described how the agency is currently developing online tools to assist small business vendors with identifying contracting opportunities that align with their capabilities. Overall, the Administrator believes that these efforts demonstrate the role of SBA as a mentor and partner to small businesses.
Thornberry Acquisition Reform Bill Contemplates DoD’s Use of Online Marketplaces to Purchase COTS Product
David S. Black, Partner, Holland & Knight
Eric S. Crusius, Senior Counsel, Holland & Knight
Imagine if a DoD agency could purchase commercial-off-the-shelf products of any value simply by placing an order at an Amazon-like website – no need for solicitations, quotes, evaluation, or detailed price analysis and absolutely no government-unique terms and conditions. That is the vision of House Armed Services Committee Chairman Mac Thornberry (R-Texas) in a bill introduced on May 18, 2017. If enacted, this reform would revolutionize the way the Department of Defense acquires COTS products and likely diminish DoD’s use of GSA’s Federal Supply Schedules. However, as explained below, the prospects of the Bill being enacted into law without significant revision seem low because, as currently drafted, it contravenes many ingrained strands of Federal procurement policy and exposes DoD to unintended consequences and risks.
Proposed Acquisition Streamlining “on Steroids” by Bringing the Online Shopping Experience to Federal Procurement
The proposed use of online marketplaces is set forth in § 101 of the “Defense Acquisition Streamlining and Transparency Act” (H.R. 2511) (the Thornberry Bill). The Thornberry Bill directs the DoD Secretary to establish contracts with one or more “online marketplace providers” to enable DoD-wide use of such marketplaces. For reasons that are not clear, the Bill authorizes DoD to award contracts to marketplace providers without the use of full and open competition.
The purpose of the Thornberry Bill is to allow DoD to leverage existing, robust, privately run online portals for COTS items. The Thornberry Bill specifies that online marketplace providers must be commercial, non-government entities that provide an online portal for the purchase of COTS products (but not COTS services). The Thornberry Bill specifically excludes online portals managed by the Government, such as GSA’s e-Buy. The Thornberry Bill requires that the online marketplaces used by DoD be “used widely in the private sector, including in business-to-business e-commerce.” The Thornberry Bill also specifies an Amazon-like shopping experience that the online marketplaces must provide to DoD purchasers, including:
- Ability to sort or filter offers from multiple suppliers on similar products based on product, shipping price, delivery date, and reviews of suppliers or products;
- Dynamic selection and dynamic prices (i.e., where suppliers frequently update products and prices); and
- Consolidated invoicing, payment, and customer service functions on behalf of all suppliers.
To promote objectivity in product searches, qualified online marketplaces must not feature or prioritize products of any suppliers based on supplier fees paid to the marketplace provider. In addition, the technology platform of the marketplaces must provide procurement oversight controls, such as spending limits, order approval, and order tracking.
The Thornberry Bill contemplates that use of online marketplaces will result in a breathtaking streamlining of the procurement process for COTS products.
- As currently drafted, the Bill does not limit the use online marketplaces to micro-purchases, simplified acquisitions, or any other dollar limit. DoD agencies could satisfy requirements for COTS products of unlimited value by shopping online.
- As currently drafted, the Bill does not require any public notice of the DoD’s requirements or any common cutoff date for the receipt of quotes. As long as there are offers from only two suppliers of a required product on the online marketplace, the online purchase will satisfy the Competition in Contracting Act (CICA), and no other competitive procedures are necessary.
- As currently drafted, the Bill prevents DoD from requiring any Government-specific terms and conditions as conditions of sale, including politically sensitive provisions such domestic preference requirements (other than the Berry Amendment and specialty metals), equal opportunity requirements, whistleblower protections, small business subcontracting requirements, prohibitions against child labor and human trafficking, audit rights, and contracting with inverted domestic corporations. Instead, the Bill requires that online purchases will be made under the standard terms and conditions of the online marketplace, and DoD “shall not require an online marketplace to modify its standard terms and conditions as a condition of receiving a contract” – including presumably dispute resolution procedures under the Contract Disputes Act and protest procedures authorized by CICA and the Tucker Act.
- The Bill also would obviate the need from any “commerciality” analysis by deeming such procurement to be commercial as long as the product has been purchased within the past year by a non-government entity through the online marketplace.
As currently drafted, the Bill makes only two nods to traditional Federal contracting. First, the online marketplace must allow DoD users to search and identify suppliers and products that are not authorized for Federal procurement because (1) the seller has been suspended or debarred; or (2) the seller’s products do not comply with the Berry Amendment or specialty metals requirements; or (3) the products are on the Procurement List of products established by the Committee for Purchase from People Who Are Blind or Severely Disabled. Second, the Bill requires the online marketplace to provide sales data on at least a monthly basis that DoD can enter into the Federal Procurement Data System (FPDS).
If passed, the Bill could have a significant adverse impact on GSA and its Federal Supply Schedules Program and other GWAC programs. In comparison to the private sector online marketplaces contemplated by the Bill, GSA’s online processes are slower, more cumbersome, and – with the 0.75% Industrial Funding Fee tacked on to every purchase – potentially more expensive. It is easy to imagine a scenario where, for COTS products, DoD agencies largely abandon the FSS Program in favor of the uber-streamlined process afforded by the private online marketplaces. Contractors seeking to sell COTS products to DoD would likewise shift their marketing and business development strategies away from GSA to the online marketplaces.
Uncertain Political Prospects Due to Policy Hurdles, Unintended Consequences, and Financial Risks
Although the idea of DoD acquisition professionals tossing out the FAR & DFARS and filling major COTS product requirements quickly online may have some surface appeal, the Thornberry Bill appears to cross numerous political “red lines” in Federal procurement policy and expose DoD to unintended consequences and risks. It is difficult to imagine the Bill passing the House and Senate and winning President Trump’s approval without significant revisions that would counter its “streamlining” intentions. It is also possible this proposed reform may end up scuttled by the scope of its ambition.
The well-established procurement policies jettisoned by the Thornberry Bill are substantial. For example, as currently drafted:
- The Bill would authorize DoD to purchase hundreds of millions of dollars in COTS products made in any foreign nation (with the limited exception of products subject to the Berry Amendment and domestic preferences for specialty metals). The Bill would at long last open up the U.S. Defense market to lower cost COTS products manufactured in China, India, Malaysia, Thailand, and Taiwan (which are currently excluded under the Trade Agreements Act). This is because, outside of the Berry Amendment or specialty metals requirements, DoD will have no authority to impose “Buy American” domestic preferences, which are unlikely to exist in the standard terms and conditions of the online marketplace.
- The Bill would authorized DoD to spend millions in taxpayer dollars on purchases from companies who are inverted domestic corporations. Again, online marketplaces do not impose this kind of prohibition as a standard term and condition.
- Under the Bill, DoD could spend millions on products sold by contractors or who engage in objectionable employment practices, such as discrimination based on race, sex, national origin, religion, color, sexual orientation, or gender identity; use of child labor; practices that constitute human trafficking, or retaliation against whistleblowers.
- The Bill imposes no policy or plan to foster small business participation, such as set-aside requirements or a requirement that small business concerns have an opportunity to participate as subcontractors in the online marketplace contracting. (Instead, the Bill’s small business provision is limited to allowing DoD to take credit for orders placed directly with prime contractors who happen to be small businesses.)
- The Bill would also expose DoD to risk of counterfeit electronic parts in COTS products. DoD would be prevented from requiring online marketplace contractors to implement an acceptable detection and avoidance system (as is required in commercial item subcontracts under DFARS 252.246-7007) unless such a requirement was already among the standard terms and conditions of the marketplace, which seems unlikely.
In addition, the Bill also appears to have the unintended effect of waiving of DoD’s sovereign immunity from contract claims outside the forums provided by the Contract Disputes Act by subjecting DoD to the dispute resolution mechanisms provided by online marketplaces. The current version of the Bill has this effect by prohibiting DoD from requiring the online marketplace to accept any Government-specific terms and conditions – such as the “Disputes” clause at FAR 52.233-1. Likewise, the Government would be unable to terminate orders for default or convenience or issue stop work orders unless the standard terms and conditions of the online marketplaces already provided buyers with these rights.
Finally, it is unclear how GAO or the Court of Federal Claims could hear protests of orders if the terms and conditions of the online marketplace do not provide for this mechanism. It is not difficult to imagine potential violations of even the streamlined procedures required by the Thornberry Bill. For example, if offers from at least two suppliers of a product were not available, the agency would be required to use “traditional” competitive procedures under CICA. In addition, if an order was placed with a contractor whose product failed to comply with the Berry Amendment or the specialty metals requirement, then the order would be illegal – and compliant contractors would lose an opportunity to win this business. It is unclear how GAO’s automatic stay and other protest procedures and remedies would overlap with the “standard terms and conditions” of the online marketplace. Considering that there is no monetary limit on the size of online purchases of COTS products, Congress should be concerned about providing interested parties with some avenue to ensure the integrity of this acquisition process − through which millions of dollars in annual appropriations may flow.
Furthermore, in light of the well documented problems the Government has experienced with the use of streamlined procurement methods – such as the use of government purchase cards for micro-purchases − the absence of internal controls for this kind of online “shopping” would likely expose DoD to increased risk of fraud, waste, and abuse.
Another political risk arises from advocates of GSA’s FSS Program. It is possible that these advocates could seek to persuade Congress to either abandon the Thornberry Bill’s proposal altogether or add requirements that bring the online marketplaces into competitive equivalence with GSA’s eBuy portal, which will thwart the streamlining purpose of this reform.
COTS Product Contractors: “Wait and See” While Staying the Course with Existing Strategies
Contractors who sell COTS products to DoD should monitor this proposal as it develops over the next several months. If the Thornberry Bill becomes law, there will be delays associated with regulatory implementation and establishment of DoD’s relationship with the online marketplace(s). Until contractors know which marketplace will be utilized by DoD, there is little to do but wait.
First, it will take time (approximately 6-12 months) to revise the DFARS to implement related regulations regarding award of the contracts with the online marketplaces and how DoD activities can place orders at the marketplaces. Awarding the contracts with the online marketplaces should also take some additional time. Thus, if the Thornberry Bill can find a path through Congress, any changes in how DoD purchases COTS products created by the Thornberry Bill are likely at least 18-24 months away from creating actual business opportunities for COTS product contractors.
Next, contractors must wait and see which online marketplace DoD will actually utilize. Contractors selling COTS products tend to be participating vendors in existing online marketplaces such as Staples and Office Depot, rather than providers of the online marketplaces themselves. While many already have a business presence in the online marketplaces that are possible candidates for a future relationship with DoD, opportunities will not arise until DoD finalizes its contract(s) with the provider(s) of such marketplaces.
Once DoD makes its choice, COTS product contractors will finally be in a position to implement a DoD-specific marketing strategy using the selected online marketplace and to optimize its product presence at such marketplace to maximize DoD sales. But until the online marketplaces become available to transact business with DoD, COTS product contractors should maintain focus on existing marketing and business development strategies in the Federal marketplace, such as the FSS Program and other GWAC vehicles.
The online marketplaces contemplated by the Thornberry Bill are a revolutionary concept that would, if enacted as currently drafted, radically streamline how DoD acquires COTS products and dramatically alter the business strategies of companies seeking to sell such products to DoD. But the first draft of the Bill seems to ignore harsh political, legal, and operational realities that make its passage seem unlikely in its current form. Because of the deeply ingrained procurement policies that would have to be abandoned, legal requirements of the Government “sovereign” when it acts in its proprietary capacity that would have to be ignored, and the potential of fraud, waste, and abuse within the bureaucratic operating environment, the legislative prospects of this reform as currently drafted seem uncertain at best.
In honor of our good friend and colleague, Joe Caggiano, who was not only a 23-year veteran of the Federal contracting marketplace, but a naval veteran as well, the Coalition will be hosting the 5th Annual Joseph P. Caggiano Memorial Golf Tournament on Wednesday, August 23, at Whiskey Creek Golf Club in Ijamsville, MD. This will be an especially important tournament for everyone as the Coalition hopes to fulfill our fundraising goal for our veteran scholarship with your help!
As you may recall from previous years, the tournament proceeds will support the Coalition’s endowment for a qualified veteran concentrating their studies in the field of US Government procurement and pursuing the JD/LLM degree or the interdisciplinary Masters degree at The George Washington University. Joe would be so proud of this endowment as we encourage the next generation of skilled professionals to lead this critically important sector of the US economy.
In addition, following last year’s landslide victory by Grainger, the Coalition is very excited for its second annual “Best Dressed Team” award, which will be presented to the foursome with the most creative, entertaining, and coordinated outfits. With their stylish hats, dapper pants, and snazzy socks, Grainger set the bar incredibly high, so start planning your outfits today!
We have several exciting sponsorships available including title sponsors, beverage cart sponsors, hole sponsors, and many more with all budgets in mind. Please click here to review sponsorship opportunities and contact Matt Cahill at email@example.com or 202-315-1054 with any questions or commitments. We look forward to your support, and to a day filled with competition, camaraderie and remembrance.
To register, click here.
This Week on Off-the-Shelf: Digital Transformation in the Federal Government
Mossburg shares his insights on how digital transformation is bringing efficiency, effectiveness and value to agency operations. He explains how digital transformation brings multiple technologies, interaction models and “as a service” capabilities together to fundamentally changing the way agencies do business.
To listen to the show, click here.
Last week, the General Services Administration (GSA) published a blog detailing a recent white paper published by its Data Center Optimization Initiative (DCOI) Program Management Office (PMO). Titled, “Infrastructure as a Service (IaaS) Considerations for the Data Center Community,” the white paper describes common findings and guidance related to four topic areas:
Many agencies find it difficult during the initial years of an IT transformation project to demonstrate a positive return on their investment. Often, this has little to do with the new technology itself, but rather a deficient understanding of resource utilization. By adapting new understandings of their costs and resource allocation, agencies can enhance their ability to demonstrate the value of these projects.
In order to successfully transition to the cloud, agencies need a clear understanding of what resources are required. This includes, but is not limited to, understanding the tradeoffs between owning and renting assets, data security, and maintaining a skilled workforce.
Understanding pricing structures and virtualizations prior to pursuing a migration to the cloud is critical for agencies. Also, agencies must understand what they are, and are not, limited to using, such as non-FedRAMP authorized services and third-party products.
Organizational Impact – determine staffing and skill needs, cost controls and security risks.
Prior to any significant IT transformation effort, agencies must proactively plan for how their organization will transform with their IT infrastructure. This includes evaluating staff size and skill, as well as costs and security risks
To read the white paper, click here.
Small Business Committee Survey
We ask that members please take a moment to complete the Coalition’s Small Business Committee Survey. The Small Business Committee serves as an open forum for small business to discuss acquisition policy and compliance issues as well as Federal contracting opportunities that are unique to small businesses. The Coalition would greatly appreciate members’ input, as it will enhance our ability to serve the interests of the Committee members.
On Monday, June 12, Federal News Radio reported that the Center for Data Innovation, a non-profit think tank that focuses on identifying opportunities and challenges associated with data, has issued a report with 10 recommendations for Congress. The recommendations are grouped into three categories that, if addressed, could enhance data innovation:
- Publish data the government already collects.
- Collect more data that can be put to valuable use.
- Encourage industries to make better use of data.
Significantly, the report’s primary recommendation is for the adoption of a permanent open-data policy. Through such an approach, the report states that Congress could spur economic growth, enhance government decision making, and increase transparency. To read the full report, click here.