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Section 814 and the Potential Impact on Innovation

H.R. 5515, the “John S. McCain National Defense Authorization Act for Fiscal Year 2019” (the Senate NDAA) passed the Senate on June 18, 2018. At this point, the House and Senate will go to conference to work out a compromise bill that can pass both chambers and go forward to the President. The bill contains a number of provisions that would reform the procurement process, one of which is Section 814, which is the focus of this week’s blog.

Specifically, Section 814 seeks to modify the limitations on certain single award task and delivery order contracts. It states:

“Section 2304a(d)(3)(A) of title 10, United States Code, is amended by striking ‘‘reasonably perform the work’’ and inserting ‘‘efficiently perform the work’’.”

10 U.S.C. 2304a(d)(3) provides the steps that must be taken should the Department of Defense (DoD) choose to avoid the preference for multiple contractors in the award of a task or delivery order. Frequent readers of the blog will recall that the Coalition has discussed generally the overarching section where this language appears, and we pointed out that regulations implementing it must:

“…Establish a preference for awarding, to the maximum extent practicable, multiple task or delivery order contracts… and establish criteria for determining when award of multiple task or delivery order contracts would not be in the best interest of the Federal Government.” (See: 10 U.S.C. 2304a(d)(4))

By substituting the word “efficiently” for “reasonable,” the proposed change to 10 U.S.C. 2304a(d)(3) would inject ambiguity into the standard for implementing this preference. Specifically, the bill does not provide any accompanying definition of the term, “efficiently.” Considering that the notion of efficiency could be one of a number of factors included in the determination of reasonableness, this ambiguity immediately becomes apparent, as this proposed change could narrow the standard that exists in law.

Changing this standard, however, carries significant policy implications. The preference for multiple-award contracts provides the government a means to reduce single-award contract duplication and coordinate requirements where it makes sense to do so. In addition, by ensuring multiple vendors are competing for task orders, this preference provides market incentives that drive innovation and keep prices fair and reasonable over the life of a given program.

Further confounding the matter is the fact that there appears to be little substantive hearing record on this proposed change, a rationale for the change is not discussed in the report accompanying the Senate NDAA. Consequently, it remains unclear to stakeholders what prompted this Section, as well as what rationale supports departing from the current, time-tested “reasonability” standard. In this regard, it is noteworthy that DoD, in its, “Summary of the 2018 National Defense Strategy of the United States of America,” emphasized the need for continuous innovation at the speed of relevance to address the evolving national security challenges the nation faces. This evolution is enhanced through the appropriate use of multiple awards. Therefore, before simply acting on this provision, government and industry stakeholders must understand the costs and benefits that would arise from its implementation.

In light of the foregoing, it will be interesting to see how Congress addresses Section 814 in Conference. The Coalition remains concerned, however, that its unsupported enactment could destabilize the procurement system by establishing a new, non-competitive acquisition approach that will diminish the ability of government purchasers to access innovative solutions.

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