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Phase II of Section 846 Implementation: An opportunity to Avoid Unintended Consequences

On June 21st, the General Services Administration (GSA) and the Office of Management and Budget (OMB) will be hosting their second public meeting to discuss the implementation of Section 846, which calls for the establishment of e-Commerce portals for agencies. The Coalition supports GSA’s and OMB’s efforts in seeking stakeholder input on this effort, and it looks forward to participating in this month’s meeting.

In March, GSA, in consultation with OMB, issued the Section 846 implementation plan, “Procurement Through Commercial E-Commerce Portals.” The implementation plan is the end-product of the first phase of information gathering and analysis, and it provides a roadmap for the ongoing examination of the key policy, operational, and management challenges surrounding implementation of commercial e-Commerce solutions in the federal space. The implementation plan included four legislative recommendations (you can hear an interesting discussion of the implementation plan here), including a proposed increase in the micro-purchase threshold (MPT) to $25,000 for transactions executed through a commercial e-Commerce portal.

The proposed increase in the MPT is a significant, fundamental change in the acquisition process. Yet, the policy and operational imperatives for increasing the MPT solely for transactions via Section 846 portals remain unknown. To date, the record provides no analysis or data assessing the need for the change or its potential impact on the current procurement system/market, including the impact on customer agencies and contractors. The proposed increase also serves to highlight the question of balance between commercial terms and conditions and necessary government requirements. The implementation plan does not include a substantive analysis addressing this “balance question.”

On Monday, GSA posted a blog, “Moving Toward a Commercial Platform Proof of Concept,” which includes a discussion of the proposed MPT increase. Specifically, GSA stated:

To get to an initial rollout faster, we asked for an increase of the micro-purchase threshold (MPT) to $25,000 for only those purchases made through a GSA-approved commercial e-commerce portal. (This last piece is a key caveat that often gets overlooked.)

The procurement community has not overlooked the fact that the proposed MPT would apply only to those purchases made through a GSA-approved commercial e-Commerce portal. Rather, stakeholders are confused that GSA is requesting an increase in the MPT for e-Commerce transactions while simultaneously maintaining the current MPT for all other transactions ($10,000 for civilian agencies, and $5,000 for the Department of Defense). As many have noted, this approach risks creating parallel procurement universes for commercial products: a pre-existing commercial item contract universe where a core set of requirements (e.g., BAA, TAA, socio-economic programs, cyber, supply chain, and counterfeit requirements) apply, and an e-Commerce portals universe where no such core law and policy requirements apply. Indeed, the proposed MPT increase implicitly sends a message favoring and incentivizing transactions via e-Commerce portals because none of these government requirements apply.

Ultimately, for a decision to elevate the MPT to be rational, it should be based on an analysis of the laws and policies that are affected by it, not simple desire. Otherwise, the agency risks policy conflicts that could create cost and/or security challenges for the government. At this point, GSA appears to have the cart before the horse; it really does not possess a complete rationale for elevating the MPT beyond an eagerness “[t]o get to an initial rollout faster.” For this reason, we believe that, at a minimum, before increasing the MPT, GSA needs to conduct a substantive assessment of the policies underlying the laws that would be waived at the new threshold and why the government’s interests are served by waiving them. Part and parcel of that assessment is an examination of whether the MPT should be waived across the board, as it is not clear why the different buying channels would warrant different policy treatment.

Further, in its blog, GSA stated that:

The increased MPT recognizes the changing nature of competition in an e-commerce world. Traditionally, micro-purchases don’t require competitive quotations and are usually performed non-competitively. Using e-commerce portals will bring a whole new level of competition into this area.

The question of the role of competition is central to leveraging e-Commerce capabilities.  Interestingly, testimony at the January 2018 public meeting on Section 846 included a discussion of how large organizations buy commercial products. This discussion focused on leveraging requirements to achieve the best pricing.  The implementation plan does not address this commercial practice. Moreover, it is not clear how highlighting/promoting transactions below the MPT is consistent with the current government category management initiatives, which seek to identify better buying strategies. Are GSA and OMB now saying that e-Commerce is now recognized as a Best In Class (BIC) acquisition?

Finally, GSA provided the following rationale for the MPT increase, as it relates to accessing data:

In addition, the data and information that we receive from transactions through this program will help us ensure that Ability One and other requirements are being met, which cannot be tracked with today’s purchase card data.

Given the lack of government requirements applicable to e-Commerce transactions below the MPT, it is unclear how GSA will use the data in the manner it is saying it will, as the reporting requirements for this information do not exist.

Based on the foregoing, GSA’s recommendation to elevate the MPT for e-Commerce portals requires further assessment before moving forward. The Coalition supports the agency as it continues its efforts to conduct market research during Phase 2 of the Implementation Plan, and we recommend that it apply any lessons learned to streamlining the procurement processes for all commercial item acquisitions, including pre-existing contracts. In the meantime, the Coalition appreciates GSA’s consideration of industry’s questions concerning the implementation of Section 846 of the FY18 NDAA, and we look forward to working with the agency as it pursues an e-Commerce portal solution.

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