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Section 846 Implementation and the Applicability of Law

The move to e-Commerce solutions envisioned by Section 846 of the FY18 National Defense Authorization Act is just the latest procurement reform initiative that seeks to strike the right balance between unique government requirements and acquisition streamlining.  Striking this balance is important for, not only the commercial e-Commerce portal program’s success, but also the system’s stability, as many important policy goals are implemented through the procurement process.  Among the most significant government-unique requirements in terms of contract compliance and performance is the Trade Agreements Act (TAA).

The TAA implements the World Trade Organization Government Procurement Agreement (WTO GPA).  Generally, under the WTO GPA, signatory countries, including the United States, have agreed not to engage in discriminatory purchasing practices in government procurement against products from eligible countries (i.e. products from signatory countries).  Specifically, the TAA limits applicable federal procurements to only American products or products from countries that have agreed to not to discriminate against each other’s products, per the WTO GPA or Free Trade Agreements.[1]

From a policy perspective, the purpose of the WTO GPA and the TAA is to promote fair and free treatment of American products in foreign government procurement.  As noted on the United States Trade Representative (USTR) website:

“A longstanding objective of U.S. trade policy has been to open new procurement opportunities for U.S. goods, services and suppliers to compete on a level playing field for foreign government procurement.  Government procurement typically comprises 10 percent to 15 percent of a country’s GDP.”

Throughout the 1990s, and into the 2000s, the USTR supported GSA’s application of the TAA to the MAS program.  The MAS program’s TAA compliance was viewed as supportive of the USTR’s efforts to open foreign government procurement to American products.

Because the TAA applies to GSA’s Multiple Award (MAS) program, products from eligible countries can be purchased by the Federal government, while products from non-WTO GPA countries are ineligible for such purchase.  In contrast, the TAA does not apply to purchases below the Micro-Purchase Threshold (MPT), meaning products from non-WTO GPA countries are eligible for purchase.  Thus, without more explanation, it is difficult to understand how the reduction of TAA-applicable transactions associated with the proposed increase of the MPT to $25,000 for transactions conducted through the Section 846 e-Commerce platforms/portals/solutions is consistent with the USTR’s efforts.

In addition, this disparate treatment highlights a potential impact of the proposed MPT increase.  As the Coalition has stated, this increase risks creating parallel procurement universes: a pre-existing commercial item contract universe (e.g. the MAS program, NASA SEWP, and NIH CIO-CS) limited to the purchase of TAA products, and an e-Commerce solutions universe where products from the non-TAA countries might be purchased (like China, which is a non-TAA country).  Accompanying those universes will be separate rules and mechanisms, and their associated costs, to assure compliance with the law (e.g. the assessment and monitoring of substantial transformation).  The paralell universes with two sets of rules could also have direct impacts on contractor sourcing decisions.  Thus, in isolation, this change, if enacted, has the potential to fundamentally alter the Federal procurement market.

It might be argued that this dynamic already exists regarding open market MPT transactions versus orders under pre-existing contracts.  Along these lines, Section 846(f)(1) states that “[a]ll laws, including laws that set forth policies, procedures, requirements, or restrictions for the procurement of property or services by the Federal Government, apply to the program …”  Thus, any restrictions, like sourcing restrictions, will not disappear.  Still, it needs to be recognized that the proposed increase in the MPT to $25,000 potentially expands the scope of the e-Commerce market by tens of billions of dollars over the next decade.  Likewise, execution of those transactions could be implemented by a significantly expanded base of purchasers.  Thus, the government will need to understand how to assure that the law is followed under such an expanded transaction base and how much that assurance will cost.

Under these circumstances, contractors already are examining the business case for maintaining pre-existing contracts.  Without understanding how the foregoing will unfold, from a business standpoint, they are right to question the business rationale for maintaining different compliance regimes for different purchasing models.  From the government’s standpoint, contractors’ conclusions will be an important element of its current assessment of the impact of Section 846 implementation on existing programs.  Further, given the government’s increasing need for process improvement, it is not unreasonable to question whether the lessons learned through the implementation of Section 846 should be applied to streamlining the procurement processes for all commercial item acquisitions, including pre-existing contracts.

These issues are important and represent fertile ground for collaboration between GSA, OMB, customer agencies, and industry.  Such engagement will increase the chance for program success, and the Coalition for Government Procurement welcomes it.

[1] The TAA, WTO GPA, and Free Trade Agreements are implemented at Federal Acquisition Regulation Subpart 25.

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