With the Office of Management and Budget’s/General Services Administration’s (OMB/GSA) release of the Phase II Report, it is apparent that, although stakeholders share the goal of leveraging commercial practices to the maximum extent practicable, they disagree how that goal can be met and what policy priorities should be respected. To help find common ground here, this week’s blog examines opportunities to bridge differing views on e-Commerce that should be leveraged as part of GSA’s upcoming draft solicitation for its initial Proof of Concept (POC).
Promote Competition Across Commercial e-Commerce Platforms
Only one of the e-Commerce portal provider models, the arguably least competitive “e-Marketplace model,” will be piloted.[1] Focusing on only the e-Marketplace model in the pilot misses an opportunity to understand how the e-Marketplace model interacts with other market-accepted e-Commerce solutions. Without this understanding, any effort to identify sound policy guidance from the pilot will be incomplete. Considering that in enacting Section 846, Congress received and addressed stakeholder concerns about competition between portal solutions, piloting all existing forms of e-Commerce (including the e-Commerce model, the e-Procurement model, and the e-Marketplace model) would align with the legislative intent of Section 846. Moreover, competition amongst all the portal providers will increase access to the commercial market, enhance competition, and deliver best value for customer agencies.
Address the Risk of Provider Conflict of Interest and Reinforce Data Protections
GSA should establish protocols for the e-Marketplace pilot. E-Marketplace providers, by definition, also are distributors of their own products. Issues, like search result order/placement, need to be mitigated to reinforce credibility in the program by conveying that even the appearance of a conflict of interest is recognized as a potential problem and is being addressed.
In addition, Section 846, as amended, provides protection related to the use of data, including a prohibition on portal providers using supplier transaction data for their own competitive purposes. These protections are crucial to address suppliers’ concerns that the data could be used by a portal provider to its advantage. Absent such protections, competing suppliers within the portal would be disadvantaged relative to the portal provider, as they would have to operate on an unlevel playing field. Currently, government contractors regularly are permitted access to sensitive data, and they are properly restricted from using this data for competitive purposes. Accordingly, GSA should follow this time-tested approach in the Section 846 pilot, as it is consistent with the language in the statute and the intent of Congress.
Prevent Market Distortion Associated with an Elevated Micro-Purchase Threshold (MPT)
The proposed, five-year elevation of the MPT risks locking up the Federal e-Commerce space by establishing a contracting program around a contracting tool. It will do so for five-years across the breadth of agencies, prompting concern that the effort is not a pilot at all, but a program. As a result, vendors with competitive, market-accepted alternatives will be left on the sidelines, with limited opportunities to participate.
In addition, increasing the MPT for the POC could have a significant impact on thousands of small business government contractors. Data suggests that, annually, small businesses furnish more than $1.5 billion of commercial products between the existing $10,000 MPT and the proposed $25,000 MPT. Thus, over five years, the POC could impact small businesses to the tune of $7.5 billion.
The risk of harm to small business could be avoided simply by limiting the POC to the existing $10,000 MPT. By so doing, these contractors would retain the opportunity to meet Federal customer’s needs that they have under other programs. In addition, such an approach would align the initiative with similar Federal efforts, like FedMall, which provides that, as part of its future efforts to expand the FedMall Marketplace, orders will be set-aside for small business between the MPT and the Simplified Acquisition Threshold (SAT).
Promote TAA Compliance and Protect the Government’s Supply Chain Overall
The Trade Agreements Act (TAA) implements the World Trade Organization Government Procurement Agreement (WTO GPA) and aids in protecting the Government’s supply chain. Pursuant to 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). This important policy imperative promotes fair treatment for American-made products and services.
Against this backdrop, Congress recently enacted legislation to address source code reporting, supply chain risk in acquisition, and the presence of certain products in the supply chain. Further, last month, the President issued an Executive Order, entitled, “Securing the Information and Communications Technology and Services Supply Chain,” that generally prohibits transactions that involve certain information and communications technology from adversaries or those that pose a risk to the economy, infrastructure, or national security.
The MPT mitigates application of the TAA provisions, and thus, elevating it opens e-Commerce as a channel to products from non-TAA signatory countries, like China, which has been identified specifically as a cyber risk. Under these circumstances, GSA should align the POC with the Administration’s manifest efforts to mitigate supply chain risk. One easy step would be to incorporate a requirement to comply with, and enforce, the TAA into the upcoming e-Marketplace provider draft POC solicitation.
Summary Thoughts
Commercial e-Commerce portals offer a potentially promising alternative for the acquisition of commercial items. The recommendations outlined in this blog will enhance competition, address supply chain risk, promote opportunities for American firms, including small businesses, and protect the integrity of Government and vendor data, while taking advantage promise of the e-Commerce market. It is evident that the proposal to elevate the MPT needs more study, and it likely should await an understanding of Government experience and risk under the recently elevated threshold. Further, it is clear the POC is reaching too far. The breadth of agencies covered, as well as the spectrum of products included, together are too large in light of the uncertainties of the solution, the cyber and supply chain risks, and the potential for increased costs.[2] Consistent with its policy of “starting small,” GSA should consider limiting the POC to a one-year pilot with a subset of agencies and products so as to minimize the risk of harm to the government.
The Coalition believes that there are many opportunities to avoid the potentially deleterious effects of some of the Phase II Report’s proposals by increasing competition and assuring the integrity of the market, while simultaneously meeting the needs of Federal customers. We welcome the Government’s efforts in this regard and offer assistance, as needed.
[1] The other models GSA developed are the e-Commerce Model where a vendor offers its own products, and the e-Procurement Model, where Software-as-a-Service solutions identify multiple sources.
[2] See prior blogs discussing studies demonstrating the excess costs of the e-Marketplace when compared with GSA Advantage.