Petrillo: Contracting goes global

Changes in WTO trade agreement could affect federal procurement practices in this country

Late last year, the World Trade Organization finished its first major rewrite of the 1979 Agreement on Government Procurement. That international pact promotes free trade in government contracting worldwide. The United States implements it through the Trade Agreements Act.

As member countries accept and implement the revisions, the changes will affect the ways that U.S. companies compete for foreign government contracts. The new rules might also affect procurement practices in this country.

As you might expect, equal treatment of domestic and foreign suppliers is the cornerstone of the agreement. Other amendments lay out rules to achieve that goal through fair and open purchasing. Much of it reads like a primer on good procurement practice.

Most of the rules foster competition and transparency. For instance, member countries must make available basic information about who is buying what, when and how.

To open competition, the agreement prohibits technical specifications that, by intent or effect, create unnecessary obstacles to international trade. There are explicit preferences for international standards and performance and functional specifications, as opposed to design or descriptive specs. The agreement also prohibits what we call organizational conflicts of interest, such as accepting advice from a commercially interested party in drafting specifications that limit competition.

Solicitations — known in international parlance as tendering documents — must contain full information about the contract, plus a listing of the criteria used to select a winning bid. Government buyers may conduct negotiations, and they may exclude a bidder for reasons consistent with the evaluation criteria.

To ensure a fair opportunity to compete, there is a standard minimum 40-day period to submit bids, or tenders. Shorter limits of 25 days apply to selective tendering, which refers to buying from a group of prequalified bidders, and 10 days in cases of urgency.

Other rules promote transparency. Signatories must publish their contract awards and report procurement statistics to a WTO committee. Fortunately, the Federal Funding Accountability and Transparency Act of 2006 requires the United States to beef up the error-prone Federal Procurement Data System.

The agreement states that member countries must provide a protest procedure.  The United States already provides this review through Government Accountability Office protests and lawsuits at the Court of Federal Claims. The agreement also contemplates government-to-government dispute resolution. 

And, finally, there is a carve-out from the agreement for a country’s “essential security interests” for national defense purposes.

When each of those amendments is implemented, U.S. companies may find it easier to win foreign contracts. But there also may be more competition from foreign suppliers for U.S. government contracts. 

U.S. law generally meets the new WTO requirements, but U.S. procedures for awarding task-and-delivery-order contracts appear to fall short of meeting some of the WTO requirements. Competition for those contracts is limited, orders aren’t announced in advance and protests are prohibited. Because such contracts are also becoming popular in the European Union, it will be interesting to see how WTO resolves this issue.

Petrillo is a lawyer at Washington law firm Petrillo and Powell. E-mail him at jp@petrillopowell.com.

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