Madsen: ‘Commercial practice’ counts

Acquisition Advisory Panel makes proposals that it argues are balanced and reasonable

The recommendations of the Acquisition Advisory Panel, soon to be issued in a draft report, clearly reflect the instructions from Congress when it established the panel in the Services Acquisition Reform Act of 2003 (SARA). The statutory charter requires the panel to protect the best interests of government, preserve the financial and ethical integrity of the acquisition process, and ensure the effective, efficient and fair award and administration of contracts. The panel reflects diverse viewpoints from industry, government and academia. It believes its recommendations, which emphasize the use of competition, have achieved the goals laid out by Congress and reflect a reasonable and balanced approach.

You would not get that impression, however, from reading the commentary by a senior executive of the Information Technology Association of America that appeared in the Sept. 11 issue of Federal Computer Week. Regrettably, that commentary makes several inaccurate claims about the recommendations of the Acquisition Advisory Panel, and we need to set the record straight.

The 14-member panel, consisting of an equal number of private- and public-sector professionals with years of experience in procurement, understood well its charter under the law. One of our main tasks was to examine current commercial buying practices and assess how the government could use them. The panel was interested in the comments of trade associations, which is why they were offered an opportunity for more than six hours of public testimony and two meetings with our commercial practices working group. The panel took comments seriously in formulating its recommendations.

To meet its statutory obligation, the panel clearly needed to hear from organizations that operate in the commercial sector and from those in the government sector. After receiving testimony from more than 100 witnesses, including two highly regarded economists, we heard several themes emerge:

  • Competition improves overall outcomes and results in innovation.
  • Commercial buyers of services rely on head-to-head competition as a bedrock principle of their services acquisition process.
  • Time-and-materials contracts are resource-intensive, expensive to manage properly and, therefore, rarely used, especially when buying solutions.
  • Well-defined performance-based requirements are a must for successful services acquisition because they lower business development costs for suppliers, drive down prices for buyers and create innovation.
  • Commercial companies that buy services continually monitor contractor performance and recompete their requirements frequently.
  • The suggestion that the panel should recommend repealing the SARA requirement for competition when buying commercial items on a time-and-materials basis was simply not supported by any of the testimony given at more than 30 public meetings and in 7,500 pages of recorded public comment.

    Competition is the cornerstone of a free market and the engine of innovation. So it is understandable that the panel became concerned when it learned that:

  • 32 percent of all government contract dollars were awarded noncompetitively in 2004.
  • The number of competitive acquisitions resulting in only one offer has doubled since 2000.
  • There is little transparency in the $140 billion in orders issued under interagency contracts.
  • The Government Accountability Office has placed interagency contracts on its High-Risk List, finding that orders frequently do not comply with competition requirements.
  • It should not surprise anyone that given those findings, the panel issued recommendations that focused on improving competition. ITAA’s representative asserted that the panel’s recommendations “roll back the clock,” but nothing could be further from the truth. Substantial testimony before the panel established that competition is the hallmark of current commercial practice. One might reasonably inquire why there would be such resistance to competition and reliance on market forces. The author’s assertion that the Acquisition Advisory Panel recommended that all existing time-and-materials contracts be converted is incorrect. The panel’s recommendation was this: “Whenever practicable, procedures should be established to convert work being done on a time-and-materials basis to a performance-based effort.”

    This probably sounds familiar to many readers because it has been a best practice for years and is the direction provided by a September 2004 memo from the director of Defense procurement and acquisition policy. The Defense Department’s inspector general has recommended it as a best practice since 2003.

    The author mischaracterized the panel’s intentions when she said it recommended that time-and-materials contracts “only be permitted when the work to be performed under the agreement can be described in detail at the time of the agreement.” Compare those words with the actual recommendation, which states: “The government should not award a time-and-materials contract unless the overall scope of the effort, including objectives, has been sufficiently described to allow efficient use of the time-and-materials resources and to provide for effective government oversight of the effort.” That is just good common sense.

    As for the doom that ITAA predicted would follow the panel’s recommendation to align the regulatory definition of commercial services to reflect the actual language of the Federal Acquisition Streamlining Act (FASA), such hysteria is unwarranted. The “of a type” language was added to the definition through regulation after it was defined in FASA. The portion of the statute addressing services does not include the phrase “of a type.”

    It is unclear what the author refers to when she asserts that conforming the regulation to the statute would doom the government to acquiring only “older generations in any category of solution.” The panel’s recommendation simply ensures that the solution is sold in the marketplace, where one would expect to find the latest technology. If there is no market-based price for a service, the government isn’t precluded from buying it. Rather, it should buy such services with more insight into their pricing to ensure that the contracting officer has a basis for determining that the taxpayer got a fair and reasonable price.

    With respect to bid protests, it was clear to the panel that such a mechanism was necessary to protect the competitive process, particularly with large orders. It seemed uneven and arbitrary to the panel that a disappointed offeror could protest a $100,000 schedule order but could not, by law, protest a $100 million order under a multiple-award contract. Why should one type of award provide for any less accountability?

    By recommending that protests be allowed under multiple-award contracts but only for orders that are more than $5 million, the panel was balancing the interests of all stakeholders. Based on the data, the majority of orders — and dollars — are awarded below the $5 million threshold. The “bite-size” repetitive buys that were supposed to be the focus of task and delivery order contracts will continue to be exempt from protests. However, the panel was concerned that large orders were being placed under those vehicles in a manner that blocked new competition for years, a circumstance that is wholly inconsistent with commercial practice.

    The notion that frivolous protests will undermine the government’s ability to meet its needs is unwarranted. It suggests a lack of discipline in the government contractor community that does not exist and that has not been the experience under the schedules. Indeed, in 2005 there were 28 protests of schedule orders, and there are 26 so far in 2006. It is worth noting that protests also impose costs and risks on contractors.

    The work of the Acquisition Advisory Panel drew on the extensive and diverse backgrounds and opinions of members from industry, government and academia. They volunteered their time to this effort. They adopted 80 recommendations, of which only three are discussed above. It is important to note that the recommendations take a 360-degree view, understanding that all recommendations have effects on costs, schedules and workers. We do not expect unanimity from all sectors of the acquisition community on all of these issues, but all parties will be best served by a debate that reflects the facts.

    Madsen, a partner at Mayer, Brown, Rowe and Maw, is chairwoman of the Acquisition Advisory Panel.

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