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.
I read an related article yesterday in the NY Times and am paraphrasing below… you can substitute “Amazon” for “online marketplace provider:”
“Think of Amazon as a 21st-century version of the 19th-century railroads that connected consumers and producers. Because of their gatekeeper role, railroads had power to discriminate, both among users and in favor of their own wares. These middlemen could tax the farmers and oil producers who depended on their rails — or deny them a ride and sink their livelihood.
In several key ways, Amazon uses its power as the railroads did. By integrating across business lines, Amazon now competes with the companies that rely on its platform. This decision to not only host and transport goods but to also directly make and sell them gives rise to a conflict of interest, positioning Amazon to give preferential treatment to itself.
The vast troves of information it collects enable it to self-deal with great finesse. News accounts tell how Amazon exploits data collected on the businesses using its platform to go head-to-head with them.
And like the railroads of yore, Amazon dictates terms and prices to those dependent on its rails. During negotiations with the publisher Hachette over e-book pricing, Amazon showed its might by effectively disabling sales of thousands of Hachette’s books overnight.
This was not an isolated instance: Reports chronicle how executives tinker with recommendation formulas that determine whether customers see certain goods, turning algorithms on and off as retailers watch sales flow and dry up, Amazon’s hand on the spigot.”