HEARINGS BEFORE THE COMMITTEE ON ARMED SERVICES UNITED STATES SENATE NINETY-FIFTH CONGRESS SECOND SESSION ON S. 1264 TO PROVIDE POLICIES, METHODS, AND CRITERIA FOR THE ACQUISITION OF PROPERTY AND SERVICES BY EXECUTIVE AGENCIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80S01268A000500030001-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 69
• Document Creation Date: December 19, 2016
• Document Release Date: January 4, 2006
• Sequence Number: 1
• Publication Date: September 22, 1978
• Content Type: REPORT

Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
FEDERAL ACQUISITION ACT
HEARINGS
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
NINETY-FIFTH CONGRESS
SECOND SESSION
ON
S. 1264
TO PROVIDE POLICIES, METHODS, AND CRITERIA FOR THE
ACQUISITION OF PROPERTY AND SERVICES BY EXECUTIVE
AGENCIES
0
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
CO..MMIT7PEE ON ARMED SERVICES
JOHN C. STENNIS, Mississippi, Chairman
HENRY M. JACKSON, Washington
HOWARD W. CANNON, Nevada
THOMAS J. McINTYRE, New Hampshire
HARRY F. BYRD, JR., Virginia
SAM NUNN, Georgia
JOHN C. CULVER, Iowa
GARY HART, Colorado
ROBERT MORGAN, North Carolina
WENDELL R. ANDERSON, Minnesota
PAUL HATFIELD, Montana
JOHN G. TOWER, Texas
STROM THURMOND, South Carolina
BARRY GOLDWATER, Arizona
WILLIAM L. SCOTT, Virginia
DEWEY F. BARTLETT, Oklahoma
JESSE HELMS, North Carolina
JAKE GARN, Utah
FRANCIS J. SULLIVAN, Staff Director
JoiiN T. Trcea, Chief Clerk
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
FEDERAL ACQUISITION ACT
COMMITTEE ON ARMED SERVICES
U.S. SENATE,
COMMITTEE ON AmIEn SErvICES,
Washington, D.C.
The committee met, pursuant to notice, at 9:30 a.m., in room 212,
Russell Senate office Building, Senator Robert Morgan presiding.
Present : Senators Morgan and Goldwater.
Also present : John C. Roberts, general counsel; John T. Ticer, chief
clerk; Phyllis A. Bacon, assistant chief clerk; Rhett B. Dawson, coun-
sel; George H. Foster, Jr., professional staff member; Doris E. Con-
nor, clerical assistant; John Stirk, assistant to Senator Morgan; David
Al. Fitzgerald, assistant to Senator Garn; Jeffrey Record, assistant to
Senator Nunn; and Brian Walsh, assistant to Senator Chiles.
Senator MORGAN. We will call the meeting to order.
The committee, this morning, will consider two matters. First, S.
1264, the Federal Acquisition Act, of 1977, and later, Senator Gold-
water, with your permission, we will consider some routine unobjected-
to nominations.
[The bill S. 1264 follows:]
[S. 1264, 95th Cong., 2d sess.]
A BILL To provide policies, methods, and criteria for the acquisition of property and
services by executive agencies
Be it enacted by the Senate and Rouse of Representatives of the United States
of America in Congress assembled,
SHORT TITLE ; TABLE OF CONTENTS
SECTION 1. (a) SHORT TITLE.-This Act may be cited as the "Federal Acquisi-
tion Act of 1977".
(b) TABLE OF CONTENTS.-
Sec. I. Short title ; table of contents.
Sec. 2. Declaration of policy.
Sec. 3. Definitions.
TITLE I-ACQUISITION METHODS AND REGULATORY GUIDANCE
Sec. 101. Acquisition methods.
Sec. 102. Regulatory compliance.
TITLE II-ACQUISITION BY COMPETITIVE SEALED BIDS
Sec. 201. Criteria for use.
Sec. 202. Invitation for sealed bids.
Sec. 203. Evaluation, award, and notifications.
TITLE III-ACQUISITION BY COMPETITIVE NEGOTIATION
Sec. 301. Criteria for use.
Sec. 302. Solicitations.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
2
See. 303. Evaluation, award, and notifications.
Sec. 304. Noncompetitive exceptions.
Sec. 305. Price and cost data and analysis.
Sec. 306. Access to records.
TITLE IV-ACQUISITION DY SIMPLIFIED SMALL PURCHASE METIIOD
Sec. 401. Criterion for use.
Sec. 402. Solicitations and awards.
See. 501. Contract types.
See. 502. Warranty against contingent fees.
Sec. 503. Cancellations and rejections.
See. 504. Multiyear contracts.
Sec. 505. Advance, partial, and progress payments.
Sec. 500. Remission of liquidated damages.
Sec. 507. Determinations and findings.
Sec. 508. Collusive bidding information.
Sec. 509. Government surveillance requirements.
Sec. 510. Maintenance of regulations.
Sec. 511. Payment of funds due.
Sec. 512. Publication of intent.
See. 51.3. Revisions of thresholds.
Sec. 514. Sunset for specifications.
See. 515. Minority business participation.
See. 516. Limitation on contract claims.
See. 601. Delegation within an executive agency.
Sec. 602. Joint acquisitions.
Sec. 701. Purpose.
Sec. 702. Jurisdiction.
Sec. 703. Proceedings.
See. 704. General provisions,
See. 705. Judicial review.
TITLE VIII-APPLICABILITY OF SUBSEQUENT LAWS
Sec. 801. Applicability of subsequent laws.
Sec. 802. Separability.
TITLE IX-AMENDMENTS AND REPEALS
Sec. 901. Amendments.
Sec. 902. Repeals.
Findings
SEc. 2. (a) The Congress hereby finds that-
(1) the laws controlling Federal purchasing have become outdated, frag-
mented, and needlessly inconsistent ;
(2) these deficiencies have contributed to significant inefficiency, ineffec-
tiveness, and waste in Federal spending ;
(3) a new consolidated statutory base is needed, as recommended by the
Commission on Government Procurement ;
(4) further, existing statutes need to be modernized to focus on effectve
competition and new technology in that-
(A) national productivity rests on a base of competitive industry
applying new technology in its goods and services ; and
(B) Federal spending practices can encourage the Nation's business
community by stimulating effective competition and the application of
new technology.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/03 : CIA-RDP80SO1268AO00500030001-5
Policy
(b) It is the policy of the United States that when acquiring property and
services for the use of the Federal Government, the Government shall, whenever
practicable rely on the private sector, and shall act so as to-
(1) best meet public needs at the lowest total cost ;
(2) maintain the independent character of private enterprise by substi-
tuting the incentives and constraints of effective competition for regulatory
controls ;
(3) encourage innovation and the application of new technology as a
primary consideration by stating agency needs so that prospective suppliers
will have maximum latitude to exercise independent business and technical
judgments in offering a range of competing alternatives ;
(4) maintain and expand the available Federal supply base by.judicious
acquisition practices designed to assure Government contracting with new
and small business concerns to the maximum practicable extent ;
(5) make available for review and examination those pertinent Federal
laws and regulations applicable to the awards of contracts and those which
may impact the performance of contracts, including, for example,. Federal
laws and agency rules relating to air and water cleanliness requirements,
and to occupational safety requirements ;
(G) provide opportunities to minority business firms to grow through Gov-
ernment contracts ;
(7) initiate large scale productions only after the item or equipment to
be acquired has been proven adequate by operational testing ; .
(8) provide contractors with the opportunity to earn a profit on Govern-
ment contracts commensurate with the contribution made to meeting public
needs and comparable to the profit opportunities available in other markets
requiring similar investments, technical and financial risks and skills ;
(9) minimize Government surveillance of contractor operations and con-
tractor performance, and to waive any controls and surveillance not necessary
to insure satisfactory performance of contracts ;
(10) pay contractors promptly any moneys due them under contracts
awarded by the United States ;
(11) rely on and promote effective competition ; to insure the availability
to the Government of alternative offers that provide a range of concept, de-
sign, performance, price, total cost, service, and delivery ; and to facilitate
the competitive entry of new and small sellers. Effective competition is gen-
erally characterized by-
(A) timely availability to prospective sellers of information required
to respond to agency needs ?
(B) independence of action by buyer and seller ;
(C) efforts of two or more sellers, acting independently of each other,
to respond to an agency need by creating, developing, demonstrating, or
offering products or services which best meet that need, whether that
need is expressed as an agency mission need, as a desired function to be
performed, performance or physical requirements to be met, or as some
combination of these ; and
(D) absence of Was or favoritism in the solicitation, evaluation, and
award of contracts.
re. 3. For purpose of this Act-
S0
(a) The term "acquisition" means the acquiring by contract with appropriated
funds of property or services by and for the use of the Federal Government
through purchase, lease, or barter, whether the property or services are already
in existence or must be created, developed, demonstrated, and evaluated. Acquisi-
tion includes such related functions as determinations of the particular agency
need ; solicitation ; selection of sources ;,,award of contracts; contract financing ;
contract performance ; and contract administration.
(b) The term "executive agency" means an executive department as defined
by section 101 of title 5, United States Code; an independent establishment as
defined by section 104 of title 5, United States Code (except that it shall not
include the General Accounting Office) ; a military department as defined by sec-
tion 102 of title 5 United States Code ; the United States Postal Service ; and a
wholly owned Government Corporation as defined by section 846 of title 31,
Approved For Release 2006/02/07 : CIA-RDP80SO1268AO00500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
United States Code (but does not include the Tennessee Valley Authority or the
Bonneville Power Administration).
(c) The term "agency head" means the head of an executive agency as defined
in subsection (b).
(d) The term "contracting officer" uneans any person who, either by virtue of
his position or by appointment in accordance with applicable regulations, has the
authority to enter into and administer contracts and make determinations and
findings with respect thereto. The term also includes the authorized representa-
tive of the contracting officer, acting within the limits of his authority.
(e) Te term "property" includes personal property and leaseholds and other
interests therein, but excludes real property in being and leaseholds and other
interests therein.
(f) The term "total cost" means all resources consumed or to be consumed in
the acquisition and use of property or services. It may include all direct, indirect,
recurring, nonrecurring, and other related costs incurred, or estimated to be in-
curred in design, development, test, evaluation, production, operation, mainte-
nance, disposal, training, and support of an acquisition over its useful life span,
wherever each factor is applicable.
(g) The term "functional specification" means a description of the intended
use of a product required by the Government. A functional specification may in-
clude a statement of the qualitative nature of the product required and, when
necessary, may set forth those minimum essential characteristics and standards
to which such product must conform if it is to satisfy its intended use.
(h) The term "unsolicited proposal" means a written offer to perform a pro-
posed effort, submitted to an agency by an individual or organization soley on
its own initiative with the objective of obtaining a contract, and not in response
to an agency request or communication,
TITLE I-ACQUISITION METHODS AND REGULATORY COMPLIANCE
ACQUISITION METHODS
SEC. 101. (a) Except as otherwise authorized by law, an executive agency shall
acquire property or services in accordance with this Act by utilizing-
(1) the competitive sealed bids method as provided in title II of this Act;
or
(2) the competitive negotiation method, as provided in title III of this Act ;
or
(3) the simplified small purchase method as provided in title IV of this
Act.
(b) These methods of acquiring property or services are equally valid alterna-
tives when selected on the basis of the nature of the product or service being
acquired, the circumstances of the acquisition, and other criteria set forth in this
Act as implemented by the Administrator for Federal Procurement Policy.
SEC. 102. (a) The Administrator for Federal Procurement Policy is authorized
and directed, pursuant to the authority conferred by Public Law 93-400 and sub-
ject to the procedures set forth in such public law-
(1) to promulgate a single, simplified uniform Federal regulation im-
plementing this Act and to establish procedures for insuring compliance with
the Act and such regulation by all executive agencies within two years after
the date of enactment of this Act ;
(2) to review such regulation on a regular basis and issue revisions as
necessary ;
(3) to make periodic studies in order to determine whether agency com-
pliance with this Act has been efficient and effective ; and
(4) to establish and oversee a program to reduce agency use of detailed
product specifications.
(b) The Administrator for Federal Procurement Policy shall include in his
annual report required under section 8 of Public Law 93-400 a report of his
activities under this section, including his assessment of agency implementation
of and compliance with the requirements of this Act (including, for example,
specific reductions in the use of detailed specifications pursuant to this Act), and
recommendations for revisions in this Act or any other provision of law.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/03/07 : CIA-RDP80SO1268A000500030001-5
TITLE II-ACQUISITION BY COMPETITIVE SEALED BIDS
CRITERIA FOR USE
SEC. 201. The competitive sealed bids method shall be used in the acquisition
of property and services when all of the following conditions are present-
(1) the anticipated total contract price exceeds the amount specified in
title IV of this Act for use of the simplified small purchase method ;
(2) the agency need can be practicably defined in terms not restricted by
security or proprietary design;
(3) the private sector will provide a sufficient number of qualified sup-
pliers willing to compete for and able to perform the contract ;
(4) suitable products or services capable of meeting the agency need are
available so as to warrant the award of a fixed price contract to a successful
bidder selected primarily on the basis of price ;
(5) the time available for acquisition is sufficient to prepare the purchase
description and to carry out the requisite administrative procedures;
(6) the property or service is to be acquired within the limits of the
United States and its possessions ; and
(7) the price for the property or service has not been established by or
pursuant to law or regulation.
INVITATION FOR SEALED BIDS
SEC. 202. (a) The invitation for sealed bids shall be publicized in accordance
with section 512 of this Act and shall be issued in such a way that-
(1) the time prior to opening the bids will be sufficient to permit effective
competition ; and
(2) the invitation will be accessible to all interested or potential bidders,
however, eligibility to participate in the bidding may be restricted to con-
cerns eligible to participate in small business set-asides or other such
authorized programs.
(b) The Invitation shall include a description of any factors in addition to
price that will be considered in evaluating bids.
(c) To the maximum extent possible and consistent with needs of the agency,
functional specifications shall be used to permit a variety of distinct products
or services to qualify and to encourage effective competition.
(d) The preparation and use of detailed product specifications in a purchase
description shall be subject to prior approval by the agency head. Such approval
shall include written justification, to be made a part of the official contract file,
delineating the circumstances which preclude the use of functional specifica-
tions and which require the use of detailed product specifications in the purchase
descriptions.
(e) Where it is impracticable to plan for award primarily on the basis of
price, the contracting officer may request the submission of unpriced technical
proposals and subsequently issue an invitation for sealed bids limited to those
offerors whose technical proposals meet the standards set forth in the original
EVALUATION, AWARD, AND NOTIFICATIONS
SEC. 203. (a) All bids shall be opened publicly at the time and place stated in
the invitation.
(b) Award shall be made to the responsible bidder whose bid conforms to the
invitation and is most advantageous to the Government, price and other factors
considered : Provided, That all bids may be rejected when the agency head deter-
mines that, for cogent and compelling reasons, it is in the Government's interest
to do so.
(c) Notice of award shall be made in writing by the contracting officer with
reasonable promptness and all other bidders shall be appropriately notified.
TITLE III-ACQUISITION BY COMPETITIVE NEGOTIATION
CRITERIA FOR USE
SEC. 301. The competitive negotiation method shall be used in the acquisition
of property and services when-
(1) the anticipated total contract price exceeds the amount specified in
title IV of this Act for use of the simplified small purchase method; and
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
6
(2) the acquisition does not: meet the criteria established pursuant to sec-
tion 101(b) or as set forth in section 20,1 of this Act for use of competitive
sealed bids.
SOLICITATIONS
Sac. 302. (a) Solicitations for offers shall be issued to a sufficient number of
qualified sources so as to obtain effective competition and shall be publicized in
accordance with section 512 of this Act, with copies of the solicitation to be pro-
vided or made accessible to other interested or potential sources upon request;
however, eligibility to respond to the solicitation may be restricted to concerns
eligible to participate in small business set-asides or other such authorized
programs.
(b) (1) Each solicitation shall include both the evaluation methodology and
the relative importance of all significant factors to be used during competitive
evaluation and for final selection. In any case, if price is included as a primary
or significant factor, tile Government's evaluation shall be based where appro-
priate on the total cost to meet the agency need.
(2) Any changes in the evaluation factors or their relative importance shall be
communicated promptly in writing to all competitors.
(c) To the maximum extent practicable and consistent with agency needs,
solicitations shall encourage affective competition by-
(1) setting forth the agency needs in functional terms so as to encourage
the application of a variety of technological approaches and elicit the most
promising competing alternatives.
(2) not prescribing performance characteristics based on a single ap-
proach, and
(3) not prescribing technical approaches or innovations obtained from any
potential competitor.
(d) If either the Government or an offeror identifies inadequacies in the solici-
tation which cause misunderstandings of the agency's needs or requirements,
clarification of intent shall be made to all offerors in a timely fashion and on
an equal basis.
(e) The preparation and use of detailed specifications in a solicitation shall
be subject to prior approval by the agency head. Such approval shall include
written justification to be made a part of the official contract file, delineating
the circumstances which preclude the use of functional specifications and which
require the use of detailed product specifications.
EVALUATIONS, AWARD, AND NOTIFICATIONS
Sac. 303. (a) Written or oral discussions shall be conducted with all responsi-
ble offerors in a competitive range. Such discussions shall generally be limited to
obtaining any needed clarification, substantiation, or extension of offers. An
initial offer may be accepted without discussion when it is clear that t31e agency
need would be satisfied on fair and reasonable terms without such discussions,
and the solicitation has advised all offerors that award may be made without
discussions. If discussions are conducted with any offeror, discussions shall be
conducted with all offerors in a competitive range. Discussions shall not disclose
the strengths or weaknesses of competing offerors, or disclose any information
from an offeror's proposal which would enable another offeror to improve his
proposal as a result thereof. Auction techniques are strictly prohibited. Auction
techniques include, but are not limited to, indicating to an offeror a price which
must be met to obtain further consideration, or informing him that his price
is not low in relation to another offeror, or making multiple requests for best and
final offers. Detailed negotiations of price and technical factors shall generally
be limited to the successful offerors (s) .
(b) When wards are made for alternative approaches selected on the basis
of the factors contained in the solicitation, whether for design, development,
demonstration, or delivery, the contractors shall be sustained in competition to
the maximum extent practicable until sufficient test or evaluation information
becomes available to narrow the choice to it particular product or service.
(c) Until selection is made, information concerning the award shall not be
disclosed to any person not having source selection responsibilities, expect that
offerors who are eliminated from the competition may be informed prior to
awards.
(d) Award shall be made to one or more responsible offerors whose proposal(s),
as evaluated in accordance with the terms of the solicitation are most advantage-
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
ous to the Government. Notification of award to all unsuccessful offerors shall
be made with reasonable promptness.
(e) Notwithstanding any other provision of this Act, tho continued use of
multiple award schedules is authorized.
NONCOMPETITIVE EXCEPTIONS
SEC. 304. (a) Compliance with the procedures prescribed in sections 302 and
303 is not required if the contract to be awarded stems from acceptance of an
unsolicited proposal, or if the agency head determines that it is in the best
interest of the Government to enter into noncompetitive contract : Provided,
(1) That such determination, together with the reasons therefor, is in
writing, and conforms with regulations issued by the Administrator for
Federal Procurement Policy, pursuant to section 102(a) (1) ; and
(2) (A) for all contracts except those stemming from the acceptance of
an unsolicited proposal, notice of intent to award such a contract shall be
publicized pursuant to section 512 at least thirty days in advance of solicita-
tion of a proposal from the prospective contractor; or, at least thirty days
in advance of the proposed award date, when earlier notice is impracticable.
Such notice shall include a description of the property or services to be
acquired, the name of the prospective source, the time for accomplishment of
the work, and the reason for selection of the source. If, after such notice,
other sources demonstrate an ability to meet the requirements for the work
to be performed, a solicitation shall be issued to all such prospective offerors ;
(B) in the case of those contracts stemming from the acceptance of an
unsolicited proposal, notice of intent to award such a contract shall be
publicized prior to award, pursuant to section 512 of this Act. Such notice
shall include a description of the property or service to be acquired, the
name of the prospective source, and the time for accomplishment of the
work.
(b) Where there is no commercial usage of the product or service to be
acquired under this section, and the agency head determines that substantial
follow-on provision of such product or service will be required by the Govern-
ment, the agency head shall, when he deems appropriate, take action through
contractual provision, or otherwise, to provide the Government with a capability
to establish one or more other competitive sources.
PRICE AND COST DATA AND ANALYSIS
SEC. 305. (a) (1) The term "price data" means actual prices previously paid,
contracted, quoted, or proposed, for materials or services identical or compa-
rable to those being acquired, and the related dates, quantities, and item descrip-
tions which prudent buyers and sellers would reasonably expect to have a sig-
nificant effect on the negotiation of a contract price or payment provisions.
(2) The term "cost data" means all facts which prudent buyers and sellers
would reasonably expect to have a significant effect on the negotiation of a con-
tract price or payment provisions. Such data are of a type that can be verified as
as being factual, and are to be distinguished from judgmental factors. The term
does, however, include the facts upon which a contractor's judgment is based.
(3) The term "price analysis" means the process of examining and evaluating
a price without evaluation of the individual cost and profit elements of the price
being evaluated.
(4) The term "cost analysis" means the element-by-element examination and
evaluation of the estimated or actual costs of contract performance, and involves
analysis of cost data furnished by an offeror or contractor and the judgmental
factors applied in projecting from such data to the offered price.
(b) The contracting officer shall obtain price data and shall use price analysis
techniques to analyze and evaluate the reasonableness of a negotiated prime con-
tract price or of a price adjustment pursuant to a modification thereto where-
(1) the price is expected to be $500,000 or less;
(2) the price is based on an established catalog or market price of a com-
mercial item sold in substantial quantities to the general public ; or
(3) there has been a recent comparable competitive acquisition.
(c) In the case of subcontracts, when any of the conditions in subsection (b)
applies, price data shall be obtained and price analysis techniques shall be used
to analyze and evaluate the reasonableness of-
(1) a subcontract price-where evaluation of a subcontract price is neces-
sary to insure the reasonableness of the prime contract price, or
33-280-78 2
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
8
(2) a subcontract price adjustment pursuant to a prime contract modifica-
tion.
(d) Except as provided in subsection (b) (2) and (3), cost data shall be
obtained and cost analysis techniques shall be used to analyze and evaluate the
reasonableness of prices-
(1) whenever the price of a negotiated prime contract or a price adjust-
ment pursuant to a contract modification is expected to exceed $500,000; or
(2) for any subcontract price or price adjustment pursuant to a modifi-
cation thereto in excess of $500,000 which forms part of a negotiated prime
contract price or higher tier subcontract price.
(e) Notwithstanding subsection (b) hereof, the contracting officer may obtain
cost data and use cost analysis techniques when authorized under circumstances
set forth in regulations issued by the Administrator for Federal Procurement
Policy pursuant to this Act.
(f) Contractors and subcontractors shall submit in writing such price data or
cost data as are required to be obtained pursuant to this section. Regulations
issued by the Administrator for Federal Procurement Policy may authorize iden-
tification in writing of price data and cost data, in lieu of actual submission,
under specified circumstances.
(g) Any prime contract or subcontract or modification thereto for which price
data or cost data are required shall contain a provision that the price to the
Government, including profit or fee, shall be adjusted to exclude any significant
sums by which it may be determined by the contracting officer that such price
was increased because of reliance on data which were inaccurate, incomplete,
or noncurrent as of the date of submission or other date agreed upon between
the parties (which date shall be as close to the date of agreement on the nego-
tiated price or payment provisions as is practicable).
(h) The requirements of this section do not apply to contracts or subcontracts
where the price negotiated is based on adequate price competition, prices set by
law or reglation, or, in exceptional cases, where the head of the agency deter-
mines that the requirements of this section may be waived and states in writing
his reasons for such determination.
ACCESS TO RECORDS
SEC. 306. (a) Until expiration of three years after final payment under a con-
tract or a subcontract negotiated or amended under this title, an executive agency
is entitled to inspect the plants and examine any books, documents, papers, rec-
ords, or other data of the contractor and his subcontractors that involve trans-
actions relating to the contract or subcontract or to the amendment thereof, in-
cluding all such books, records, and other data relating to the negotiation, pric-
ing, or performance of the contract or subcontract.
(b) Until expiration of three years after final payment under a contract or
a subcontract negotiated or amended under this title, the Comptroller General
of the United States or his authorized representatives is entitled to inspect the
plants and examine any books, documents, papers, records, or other data of the
contractor and his subcontractors that directly pertain to, and involve trans-
actions relating to the contract or subcontract or to the amendment hereof,
including all such books, records, and other data relating to the negotiation,
pricing, or performance of the contract or subcontract. This provision may be
waived for any contract or subcontract with a foreign contractor or subcon-
tractor, if the Agency head determines, with concurrence of the Comptroller
General, that waiver would he in the public interest. However, the concurrence
of the Comptroller General or his designee is not required-
(1) where the contractor or subcontractor is a foreign government or
agency thereof or is precluded by the laws of the country involved from
making its books, documents, papers, or records available for examination ;
and
(2) where the head of the agency determines, after taking into account
the price and availability of the property or services from United States
sources, that the public interest would be best served by not applying sub-
section (b).
If subsection (b) is not applied to a contract or subcontract based on a deter-
mination under clause (2), a written report shall be furnished to the Congress.
(c) Inspections and examinations by executive agencies under subsection (a)
shall be conducted only when necessary to insure efficient and economical con-
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
9
tract performance and/or to evaluate the accuracy, completeness, and currency
of data submitted or identified pursuant to section 305. Multiple inspections and
examinations of a contractor or subcontractor by more than one executive
agency shall be eliminated to the maximum extent practicable by coordinating
inspection and examination responsibilities in accordance with regulations to bp
issued or authorized by the Administrator for Federal Procurement Policy pur-
suant to this Act.
TITLE IV-ACQUISITION BY SIMPLIFIED SMALL PURCIIASE.METHOD
CRITERION FOR USE
SEC. 401. The simplified small purchase method may be used in the acquisition
of property and services when the anticipated total contract price does not
exceed $10,000. In lieu of this method, the contracting officer may use either
of the competitive methods prescribed in title II or III of this Act when such
use would be more advantageous to the Government.
SOLICITATIONS AND AWARDS
SEc. 402. The contracting officer shall use simplified small purchase methods
to obtain competition to the maximum extent practicable in making small pur-
cha,ses and thereupon may make award to the source whose offer is most advan-
tageous to the Government. No provisions of this section are intended to elim-
inate effective screening of proposed acquisitions for appropriate application of
small business set-aside or other procedures designed to assist small businesses.
Simplified procedures for small purchases shall be issued by the Administrator
for Federal Procurement Policy pursuant to this Act.
CONTRACT TYPES
SEC. 501. (a) Contracts may be of any type or combination of types,. consistent
with the degree of technical and financial risk to be undertaken by the con-
tractor, which will promote the best interests of the Government except that the
cost-plus a percentage-of-cost system of contracting shall not be used under any
circumstances.
(b) The preferred contract type shall be fixed price consistent with the nature
of the work to be performed and the risk to be shared by the Government and
the contractor.
WARRANTY AGAINST CONTINGENT FEES
SEC. 502. Each contract negotiated under title III of this Act or an award to
be made as a result of the submission of a technical proposal under section
202(e) of this Act shall contain a warranty by the contractor that no person or
selling agency has been employed or retained to solicit or secure the contract
upon an agreement or understanding of a commission, percentage, brokerage, or
contingent fee, excepting bona fide employees or bona fide established commer-
cial or selling agencies maintained by the contractor for the purpose of securing
business ; and that for any breach or violation of the warranty, the Government
may annul the contract without liability or deduct from the contract price or
consideration the full amount of the commission, percentage, brokerage, or
contingent fee.
CANCELLATIONS AND REJECTIONS
SEC. 503. (a) Where the contracting officer determines for cogent and com-
pelling reasons, that it is in the best interest of the Government, he may-
(1) withdraw or cancel a small purchase order which has not been ac-
cepted in writing by the contractor, prior to the contractor's initiation of
performance ;
(2) cancel an invitation for sealed bids before bid opening or after bid
opening but before award ; or
(3) cancel a request for proposal and reject all offers.
(b) When requested, the contracting officer shall fully inform any unsuccess-
ful offeror or bidder of the reasons for the rejection of his offer or bid.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
10
MULTIYEAR CONTRACTS
SEC. 504. (a) Except as otherwise provided by law, an agency may make con-
tracts for acquisition of property or services for periods not in excess of five
years, when-
(1.) appropriations are available and adequate for payment for the first
fiscal year ; and
(2) the Agency head determines that-
(A) the Government need for the property or services being acquired
over the period of the contract is reasonably firm and continuing: and
(B) such a contract will serve the best interests of the United States
by encouraging effective competition or promoting economics in per-
formance and operation ; and
(C) such a method of contracting will not inhibit small business
participation.
(b) The Administrator for Federal Procurement Policy may grant exceptions
to the five-year limitation imposed by subsection (a) upon the certification, in
such form and of such content as the Administrator may require, by the Agency
head that such exception is in the best interests of the Government. A copy of
each such certification and each exception granted shall be delivered to the chair-
man of the House Committee on Government Operations, the Senate committee
on Governmental Affairs, and the Committees on Appropriations of the House of
Representatives and the Senate, respectively.
(c) Any cancellation costs incurred must be paid from appropriated funds
originally available for performance of the contract, or currently available for
acquisition of similar property or services, and not otherwise obligated, or
appropriations made available for such payments.
ADVANCE, PARTIAL, AND PROGRESS PAYMENTS
SEC. 505. (a) Any executive agency may make advance, progress, partial, or
other payments under contracts.
(b) Advance and progress payments under contracts with small business con-
cerns shall he granted where possible and to the extent practicable under the
circumstances existing for each acquisition ; and provisions limiting advance and
progress payments to small business concerns may be inserted into solicitations.
(c) Payments under subsections (a) and (b) shall not exceed the unpaid
contract price.
(d) When progress payments are made, the Government shall have title to the
property acquired or produced by the contractor and allocable or properly
chargeable to the contract. Notwithstanding any other provisions of law, that
title may not be divested by any action of the contractor, or proceeding in bank-
ruptcy, or encumbered by any lien or security interest.
(e) Advance payments under subsection (a) or (h) shall not be made in excess
of the amount required for contract performance, and may be made only upon
adequate security and a determination by the Agency head that to do so would
be in the public interest. Such security may be in the form of a lien in favor of
the Government on the property contracted for, on the balance in an account in
which such payments are deposited, and on such property acquired for perform-
ance of the contract as the parties may agree. This lien is paramount to any other
liens.
REMISSION OF LIQUIDATED DAMAGES
SEc. 506. Upon the recommendation of the Agency head the Comptroller Gen-
eral of the United States may remit all or part, as he considers just and equi-
table, of any liquidated damages provided by the contract for delay in performing
the contract.
DETERMINATIONS AND FINDINGS
SEC. 507. (a) Determinations, findings, approvals, and decisions provided for
by this Act may be made with respect to contracts individually or with respect to
classes of contracts and shall be final.
(b) Each determination, approval, or decision shall be based upon written
findings of the officer making the determination, approval, or decision, and shall
be retained in the official contract file.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02{q7 : CIA-RDP80SO1268A000500030001-5
SEC. 508. (a) If the contracting officer or any other agency employee has rea-
son to to believe that any bid, proposal or offer evidences a violation of the anti-
trust laws or provisions of this Act, the matter shall be referred, in accordance
with agency procedures, to the Attorney General of the United States for ap-
propriate action.
(b) Upon the request of the Attorney General of the United States, the
Agency head shall make available to the Attorney General information which
the Attorney General considers necessary and relevant to any investigation,
prosecution or other action by the United States under the antitrust laws or
other statute enforced by the Attorney General.
(c) The Agency head shall render needed assistance to the Attorney General
in any investigation and prosecution flowing from the information provided in
subsection (a) or (b) or from other investigation and prosecution in other anti-
trust matters.
SEC. 509. (a) Notwithstanding any other provisions of law, an agency shall,
upon applicantion by a contractor, waive the requirements listed in 509(c) for
that part of a contractor's operation which is separately managed and accounted
for if, for the contractor's most recent fiscal year, more than 75 per centum of
the business of the activity, as measured by total revenues is conducted under
commercial and/or competitive Government contracts. To be competitive for
purposes of this section, the Government contracts must be firm fixed-price
or fixed-price with escalation with price the deciding factor in the award.
(b) The waiver provided in 509(a) shall not be granted if the contractor's
activity for the most recent fiscal year, had costs incurred of over $10,000,000,
under Government contracts where the contract prices were based on estimated
or actual costs. This category would include such contracts as cost reimbursement
type contracts, firm fixed-price contracts negotiated without price competition,
fixed-price incentive contracts, and time and material contracts.
(c) The waiver provided in 509(a) shall apply to any or all of the following :
(1) reviews of contractor management and procurement systems;
(2) determinations of reasonableness of indirect overhead costs;
(3) provisions of the Cost Accounting Standards Act (Public Law 91-379)
(4) advance agreements for independent research and development and
bid and proposal activities ; and
(5) provisions of the Renegotiation Act.
(d) The waiver period shall not exceed two years without reconsideration
by the Agency. The waiver may be canceled at any time or may be withheld al-
together if the Agency head makes a written determination that the waiver
should not apply.
(e) The waiver provided for in 509(a) shall not affect the General Accounting
Office access-to-records authority as set forth in section 306 of this Act.
SEC. 510. Notwithstanding the provisions of title IX of this Act or any other
provisions of law, regulations relating to Federal procurement promulgated or
in effect before the date of enactment of this Act shall remain in effect until
repealed by order of the Administrator for Federal Procurement Policy or until
the lapse of two years after the date of enactment of this Act, whichever is
earlier. No regulation preserved by operation of this section may be amended
without the prior approval of the Administrator for Federal Procurement Policy.
SEC. 511. A clause shall be included in every contract awarded by the United
States pursuant to this Act which shall provide for interest to be paid by the
Federal Government to the contractor on any amount due to the contractor for
more than thirty days. No amount shall be considered due until receipt by the
Government of a proper invoice and any substantiating documentation required.
Interest payable by the Government shall be the interest in effect which has been
established by the Secretary of the Treasury pursuant to Public Law .92-41 (85
Stat. 97) for the Renegotiation Board, as of a date thirty days after the date
the amount becomes due.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CI-RDP80S01268A000500030001-5
PUBLICATION OF INTENT
SEC. 512. It shall be the duty of the Secretary of Commerce, and he is em-
powered, to obtain notice of all proposed acquisition of above $10,000, from any
executive agency engaged in acquisitions in the United States ; and to publicize
such notices in the daily publication "United States Department of Commerce
Synopsis of the United States Government Proposed Procurements, Sales, and
Contract Awards", immediately after the necessity for the acquisition is estab-
lished; except that nothing herein shall require publication of such notices with
respect to those acquisitions-
(1) which for security reasons are of a classified nature; or
(2) which involve perishable subsistence supplies ; or
(3) which are of such unusual and compelling emergency that the Govern-
merit would be seriously injured if notice were required to be publicized
thirty days in advance of the proposed contract award date. In all such
cases, notice shall be published at the earlies practicable opportunity ; or
(4) which are made by an order placed under an existing contract; or
(5) which are made from another Government department or agency, or
a mandatory source of supply ; or
(6) for which it is determined in writing by the procuring agency, with
the concurrence of the Administrator, Small Business Administration, that
advance publicity is not appropriate or reasonable.
REVISIONS OF TIiIESIIOLDS
SEC. 513. At least every three years, beginning with the third year after en-
actment of this Act, the Administrator for Federal Procurement Policy shall
review the prevailing costs of labor and materials and may revise the amounts
stated in sections 305, 401, 509, and 512 or any prior revisions thereof, notwith-
standing any other provision of law, to reflect an increase or decrease by at least
1.0 per centum in the costs of labor and materials. At least sixty days in advance
of its effective date, the Administrator shall report to Congress any such revision
which by itself, or cumulatively with earlier increases, represents 50 per centum
or more increase.
SUNSET FOR SPECIFICATIONS
SEC. 514. All specifications shall be reviewed at least every five years, and shall
be canceled, modified, revised. or reissued as determined by such review.
MINORITY BUSINESS PARTICIPATION
SEC. 515. The Administrator for Federal Procurement Policy is authorized and
directed to initiate, in consultation with the Small. Business Administration,
periodic reviews of acquisition programs within the executive branch with the
objective of making minority business participation in government contracting
more effective and assuring that minority businesses have full opportunity to
compete for Government contracts. Targets should be set which reflect the Gov-
ermnent's commitment to increasing minority business participation in Federal
contracting.
LIMITATION ON CONTRACT CLAIMS
SEc. 516. Any claim by an executive agency against a contractor under a provi-
sion of a contract awarded by the agency pursuant to this Act shall be made
within six years from the date of final payment under the contract.
TITLE VI-DELEGATION OF AUTHORITY
DELEGATION WITHIN AN EXECUTIVE AGENCY
SEC. 601. Each agency head may delegate any authority under this Act, pro-
vided that such delegation is made in accordance with regulations established by
the Administrator for Federal Procurement Policy. Delegation of authority to
make determinations under sections 202, 302(e), 304, 305, 306, and 509 shall be
maintained at the highest organizational level practicable in order to protect the
integrity of the acquisition process consistent with the nature and the size of the
acquisition decision. The authority in section 702 (b) to authorize the award of a
contract notwithstanding a protest pending before the Comptroller General may
not be delegated below the level of Assistant Secretary or comparable level.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/0407 : CIA-RDP80SO1268A000500030001-5
JOINT ACQUISITIONS
SEC. 602. (a) To facilitate acquisition of property or services by one executive
agency for another executive agency, and to facilitate joint acquisition by those
agencies-
(1) the Agency head may, within his agency, delegate functions and assign
responsibilities relating to the acquisition ;
(2) the heads of two or more executive agencies may by agreement dele-
gate acquisition functions and assign acquisition responsibilities from one
agency to another of those agencies or to an officer or employee of another
of those agencies ; and
(3) the heads of two or more executive agencies may create joint or com-
bined offices to exercise acquisition functions and responsibilities.
(b) Subject to the provisions of section 686 of title 31, United States Code-
(1) appropriations available for acquisition of property and services by
an executive agency may be made available for obligation for acquisition of
property and services for its use by any other agency in amounts authorized
by the head of the ordering agency and without transfer of funds on the
books of the Department of the Treasury ;
(2) a disbursing officer of the ordering agency may make disbursement for
any obligation chargeable under subsection (a) of this section, upon a voucher
certified by an officer or employee of the acquisition agency.
SEC. 701. Under the authority contained in the Budget and Accounting Act,
1921, as amended, protests shall be decided in the General Accounting Office
if filed with that Office in accordance with this title. For purposes of this title,
the term "protest" means a challenge to a solicitation, or to the award or pro-
posed award of any contract to be financed by appropriated funds for the acquisi-
tion of property or services or for any sale or lease by the Government and the
term "agency" means an executive department as defined by section 101 of
title 5, United States Code ; an independent establishment as defined by section
104 of title 5, United States Code (except that it shall not include the General
Accounting Office) ; a military department as defined by section 102 of title 5,
United States Code; the United States Postal Service; a wholly owned Govern-
ment corporation as defined by section 846 of title 31, United States Code (but
does not include the Tennessee Valley Authority or the Bonneville Power Ad-
ministration) ; and any department or agency or other activity of the Federal
Government whose accounts are subject to settlement by the Comptroller General
of the United States pursuant to the Budget and Accounting Act, 1921, as
amended.
SEC. 702. (a) In accordance with the procedures issued pursuant to section 704.
the Comptroller General shall have authority to decide any protest submitted
by an interested party or referred by any agency or Federal instrumentality.
An interested party is a firm or an individual whose direct economic interest
would be affected as contractor or subcontractor by the award or nonaward of
the contract.
(b) No contract shall be awarded after the contracting activity has received
notice of a protest to the Comptroller General while the matter is pending before
him : Provided, however. That the head of an executive agency may authorize
the award of a contract notwithstanding such protest, upon a written finding
that the interest of the United States will not permit awaiting the decision of
the Comptroller General: And provided further. That the Comptroller is advised
of such finding prior to the award of the contract.
(c) With respect to any solicitation, proposed award, or award of contract
protested to him in accordance with this title, the Comptroller General is au-
thorized to declare whether such solicitation, proposed award, or award com-
ports with law and regulation.
SFC. 703. (a) To the maximum extent practicable, the Comptroller General
shall provide for the inexpensive, informal, and expeditious resolution of
protests.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
14
(b) Each decision of the Comptroller General shall be signed by him or his
delegee and shall be issued under the authority of the Comptroller General to
settle the accounts of the Government under the Budget and Accounting Act,
1921, as amended. A copy of the decision shall be furnished to the interested
parties and the executive agency or agencies involved.
(c) There shall be no ex party proceeding in protests before the Comptroller
General or his representative, except that this subsection shall not be deemed
to preclude informal contacts with the parties for procedural purposes.
(d) The Comptroller General is authorized to dismiss any protest he deter-
mines to be frivolous or which, on its face, does not state valid basis for protest.
(e) Where the Comptroller General has declared that a solicitation, proposed
award, or award of a contract does not comport with law or regulation, he
may further declare the entitlement of an appropriate party to bid and pro-
posal preparation costs. In such cases the Comptroller General may remand
the matter to the executive agency involved for an initial determination as to
the amount of such costs. Declarations of entitlement to monetary awards shall
be paid promptly by the executive agency concerned out of funds available for
the purpose.
GENERAI. PROVISIONS
SEC. 704. The Comptroller General shall issue such procedures, not inconsistent
with this title, as may be necessary in the execution of the protest decision func-
tion. He may delegate his authority to other officers or employees of the Gen-
eral Accounting Office.
SEC. 705. Any person adversely affected or aggrieved by the action, or the failure
to act, of an executive agency, or of the Comptroller General, in respect of a
solicitation or award hereunder may obtain judicial review thereof to the extent
provided by sections 702 through 706 of title 5, United States Code, including
determinations necessary to resolve disputed material facts or when otherwise
appropriate.
TITLE VIII-APPLICABILITY OF SUBSEQUENT LAWS
SEC. 801. No law enacted after the date of enactment of this Act, including
any limitation in any appropriation bill or any limitation of any provision au-
thorizing the appropriation of funds, may be held, considered, or construed as
amending any provision of this Act, unless such law does so by specifically and
explicitly amending or superseding a specific and separately referenced pro-
vision of this Act.
SEC. 802. If any provi.sion of this Act or the application thereof to any person
or circumstance is held invalid, neither the remainder of this Act nor the ap-
plication of such provision to other persons or circumstances shall be affected
thereby.
TITLE IX--AMENDMENTS AND REPEALS
SEC. 901. (a) The Agriculture Department Appropriation Act, 1923, is amended
by striking out ", after due advertisement and on competitive bids," in the first
proviso on the page at forty-second Statutes at Large, page 517 (7 U.S.C. 416).
1944)(58 Section 101() ad 14 of the Stat. 734, 736; 7 I.>?S.C. 430, 432) are eamend ed Agriculture
by Striking out Organic Act the
open market".
(c) Section 235556(b) of title 10, United States Code, is amended by striking
out the last sentence.
(d) Sections 4504 and 9504 of title 10, United States Code, are each amended
by striking out everything after "United States" and inserting in lieu thereof
a period.
(e) Sections 4505 and 9505 of title 10, United States Code, are each amended
by striking out the second sentence.
(f) Clause (2) of section 502(c) of the Act of August 10, 1948 (62 Stat. 1283;
12 U.S.C. 1701c (b) (2) ), is amended by striking out ", without regard to section
3709 of the Revised Statutes".
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268AO00500030001-5
15
(g) Section 502(e) of the Act of December 31, 1970 (84 Stat. 1784; 12 U.S.C.
1701z-2 (e) ), is amended by striking out ", without regard to section 3709 of the
Revised Statutes,".
(h) Section 708(h) of the Act of June 27; 1934, as amended August 10, 1948
(62 Stat. 1279; 12 U.S.C. 1747g(h) ), is amended by striking out the proviso at
the end.
(i) Section 712 of the Act of June 27, 1934, as amended August 10, 1948 (62
Stat. 1281; 12 U.S.C. 1747k) is amended by striking out "and without regard to
section 3709 of the Revised Statutes".
(j) Section 208(b) of the Act of June 26, 1934, as amended October 19, 1970
(84 Stat. 1014; 12 U.S.C. 1788(b) ), is amended by striking out the last sentence.
(k) Clause (4) of section 2(b) of the Act of July 18, 1958 (72 Stat. 386; 15
U.S.C. 634(b) (4)), is amended by striking out: "Section 3709 of the Revised
Statutes, as amended (41 U.S.C., section 5), shall not be construed to apply to
any contract of hazard insurance or to any purchase or contract for services
or supplies on account of property obtained by the Administrator or as a result
of loans made tinder this Act if the premium therefor or the amount thereof
does not exceed $1,000.".
(1) Section 3 of the Act of April 24, 1950 (64 Stat. 83; 16 U.S.C. 580c) is
amended to read as follows :
"SEC. 3. The Forest Service is authorized to make purchases of (1) materials
to be tested or upon which experiments are to be made. or (2) special devices,
test models, or parts thereof, to be used (a) for experimentation to determine
their suitability for or adaptability to accomplishment of the work for which
designed or (b) in the designing or developing of new equipment : Provided, That
not to exceed $50,000 may be expended in any one fiscal year pursuant to this
authority and not to exceed $10,000 on any one item or purchase.".
(m) Section 2(b) (1) of the Act entitled "An Act to authorize the construction
of a National Fisheries Center and Aquarium in the District of Columbia and
to provide for its operation", approved October 9, 1962 (76 Stat. 753; 16 U.S.C.
1052), is amended by striking out ", without regard to the provisions of section
3709 of the Revised Statutes of the United States (41 U.S.C. 5),".
(n) Section 224(a) of the Act of November 8, 1965 (79 Stat. 1228; 20 U.S.C.
1034(a) ), is amended by striking out ", and, without regard to section 3709 of
the Revised Statutes (41 U.S.C. 5),".
(o) Section 7 of the Act of December 20, 1945, as amended October 10, 1949
(59 Stat. 621; 22 U.S.C. 287e), is amended by striking out ", all without regard
to section 3709 of the Revised Statutes, as amended (41 U.S.C. 5)".
(p) Section 707 of the Act of August 13, 1946 (60 Stat 1019; 22 U.S.C. 1047),
is amended by striking out ", without regard to section 3709 of the Revised
Statutes".
(q) Section 22(e) (7) of the Act of December 29, 1970 (84 Stat. 1613, 29
U.S.C. 671(e) (7)), is amended by striking out ", and without regard to section
3709 of the Revised Statutes, as amended (41 U.S.C. 5), or any other provision
of law relating to competitive bidding."
(r) Section 6(b) of the Act of August 31., 1954 (68 Stat. 1010; 30 U.S.C.
556(b) ), is amended by striking out "and without regard to the provisions of
section 3709, Revised Statutes (41 U.S.C. 5)".
(s) Section 1820(b) of title 38, United States Code, is amended by striking
out "section 5 of title 41" and inserting in lieu thereof the "Federal Acquisition
Act of 1977" and by deleting "if the amount of such contract exceeds $1,000.".
(t) Section 5002 of title 38, United States Code, is amended by substituting a
period for the comma after "work" and striking out the remainder of the section.
(u) The Act of October 10, 1940, as amended (54 Stat. 1109; 41 U.S.C. 6a,
1) (a), is amended by striking out section 2, and by striking out "without regard
to the provisions of section 3709 of the Revised Statutes, as amended," In sub-
section (a). The Act of July 27, 1965 (79 Stat. 276; 41 U.S.C. 6a-1) is amended
by striking out any and all references to section 3709 of the Revised Statutes
in the sections relating to Architect of the Capitol.
(v) Section 11 of the Act of June 30, 1936 (49 Stat. 2039, renumbered section
12 in 66 Stat. 308; 41 U.S.C. 45), is amended to read as follows :
"Sac. 12. The provisions of this Act requiring the inclusion of representations
with respect to minimum wages shall apply only to purchases or contracts relat-
ing to such industries as have been the subject matter of a determination by the
Secretary of Labor.".
(w) Section 356(b) of the Act of July 1, 1944, as added October 18, 1968 (82
Stat. 1175; 42 U.S.C. 263d (b) ), is amended by striking out the references to
35-280-78--3
Approved For Release 2006/02/07 : CIA-RDP80SO1268AO00500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
16
section 3709 of the Revised Statutes and 41 U.S.C. 5 in clause (3), and by
striking out the parenthetical phrase "(by negotiation or otherwise)" in
clause (4).
(x) Section 1(b) of the Act of October 14, 1940 (54 Stat. 1126; 42 U.S.C.
1521 (b) ), is amended by striking out the reference to section 3709 of the Revised
Statutes in the first parenthetical phrase, and by striking out the first proviso
and inserting in lieu thereof : "Provided, That the cost plus a percentage of cost
system shall not be used.".
(y) Section 202(b) of the Act of October 14, 1940 (55 Stat. 362; 42 U.S.C.
1532(b)), is amended by striking out the reference to section 3709 of the
Revised Statutes, and by adding the following proviso at the end of paragraph
1532(b) ; "Provided, That the cost plus a percentage of cost system shall not be
used.".
(z) Section 309 of the Act of September 1, 1951 (65 Stat. 307; 42 U.S.C. 1592h),
is amended by striking out clause (a), and amending clause (b) to read as
follows :
" (b) the fixed-fee under a contract on a cost-plus-a-fixed-fee basis shall not ex-
ceed 6 per centum of the estimated cost ;".
(aa) Section 103(b) (4) and 104(a) (2) of the Act of July 14, 1955, as amended
November 21, 1967 (81 Stat. 486, 487; 42 U.S.C. 1857b (b) (4), b-1(a) (2) ), is
amended by striking out the references to section 3709 of the Revised Statutes
and to section 5 of title 41, United States Code.
(bb) Section 31(b) of the Atomic Energy Act of 1954 (68 Stat. 927; 42 U.S.C.
2051(c)) is amended to read as follows :
"(c) The Commission may make available for use in connection with arrange-
ments made under this section such of its equipment and facilities as it may deem
desirable.".
(cc) Section 41(b) of the Atomic Energy Act of 1954 (68 Stat. 928; 42 U.S.C.
2061(b)) is amended by striking out the last three sentences in this section.
(dd) Section 43 of the Atomic Energy Act of 1954 (68 Stat. 929; 42 U.S.C. 2063)
is amended by striking out the following : "without regard to the provisions of
section 3709 of the Revised Statutes, as amended, upon certification by the Com-
mission that such action is necessary in the interest of the common defense and
security, or upon a showing by the Commission that advertising is not reasonably
practicable. Partial and advance payments may be made under contracts for such
purposes.".
(ee) Section 55 of the Atomic Energy Act of 1954 (68 Stat. 931; 42 U.S.C. 2075)
is amended by striking out the second and third sentences in this section.
(ff) Section 6 of the Atomic Energy Act of 1954 (68 Stat. 933; 42 U.S.C. 2096)
is amended by striking out the following: "Any purchase made under this section
may be made without regard to the provisions of section 3709 of the Revised
Statutes, as amended, upon certification by the Commission that such action is
necessary in the interest of the common defense and security, or upon a showing
by the Commission that advertising is not reasonably practicable. Partial and
advance payments may be made under contracts for such purposes.".
(gg) Section 203(e) of the Act of April 3, 1970 (84 Stat. 115; 42 U.S.C. 4372
(e) ), is amended by striking out the references to section 3709 of the Revised
Statutes and to section 5 of title 41, United States Code.
(hh) Section 703 of the Act of June 29, 1936 (49 Stat. 2008; 46 U.S.C. 1193), is
amended by striking out subsection (a), by striking out "For the construction,
reconstruction, or reconditioning of vessels, and" in subsection (c), and by re-
numbering subsections (b) and (c) as (a) and (b), respectively.
(ii) Section 8(a) of the Act of September 30, 1965 (79 Stat. 894; 49 U.S.C.
1638(a) ), is amended by striking out the references to section 3709 of the Revised
Statutes and to section 5 of title 41, United States Code, in paragraph (1), and
by striking out paragraphs (3) and (4).
(jj) Section 5012 of title 38, United States Code, is amended by striking out the
second sentence in subsection (a) and all of subsection (c).
(kk) Section 832(g) of title 16, United States Code, is amended by striking
out "$500" and inserting in lieu thereof "$10,000".
(11) Section 2075 of title 42, United States Code, is amended by striking
out the second sentence and the third sentence in this section.
(inm) Section 6009(d) of title 42, United States Code, is amended by striking
out the last sentence.
(nn) Section 286d(a) (7) of title 42, United States Code, is amended by strik-
ing out "without regard to section 5:29 of title. 31 and section 5 of title 41".
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
17
(oo) Section 287b(c) (3) of title 42, United States Code is amended by strik-
ing out "without regard to section 529 of title 31 and section 5 of title 41".
REPEALS
SEC. 902. The following statutes or provisions of statutes are repealed.
Chapters 135 and 137 and sections 4535, 7522, and 9535 of title 10, United
States Code ; section 637(e) of title 15, United States Code ; section 7 of the
Act of May 18, 1938 (52 Stat. 406; 16 U.S.C. 833f) ; section 7 of the Act of
March 3, 1875, as amended (18 Stat. 450; 25 U.S.C. 96) ; section 3 of the Act
of August 15, 1876, as amended (19 Stat. 199; 25 U.S.C. 97) ; sections 602(d) (3)
and 602(d) (10) of the Federal Property and Administrative Services Act as
amended (40 U.S.C. 474 (3), (8), (10), and (19) ; sections 10(a) and 10(b)
of the Act of September 9, 1959 (73 Stat. 481; 40 U.S.C. 609 (a), (b)) ; section
3735 of the Revised Statutes (41 U.S.C. 13) ; section 3653 of the Revised Statutes,
as amended by the Act of July 7, 1884 (23 Stat. 204; 41 U.S.C. 24) ; title III
of the Federal Property and Administrative Services Act of 1949 as amended
(41 U.S.C. 251 et seq.) ; 41 U.S.C. 254(b) ; section 10(a) of the Act of Septem-
ber 5, 1950 (64 Stat. 591; 41 U.S.C. 256a) ; section 242m(f) of title 42, United
States Code; section 292f of title 42, United States Code; section 300c-11(b) (4)
of title 42, United States Code; section 300c-22(d) of title 42, United States
Code ; section 300d-5 (d) of title 42, United States Code ; section 300e-2 (g) of
title 42, United States Code ; section 300e-8(h) of title 42, United States Code ;
section 510(3.) of the Act of July 15, 1949 (63 Stat. 437; 42 U.S.C. 1480(a)) ;
section 6(e) of the EURATOM Cooperation Act of 1958 (72 Stat. 1005; 42
U.S.C. 2295 (e) ) ; section 1345 (b) of the Act of August 1, 1968 (82 Stat. 585;
42 U.S.C. 4081(b)) ; section 404 of the Act entitled "An Act to authorize ap-
propriations during the fiscal year 1969 for procurement of aircraft, missiles,
naval vessels, and tracked combat vehicles, research, development, test, and
evaluation for the Armed Forces, and to prescribe the authorized personnel
strength of the Selected Reserve of each Reserve component of the Armed
Forces, and for other purposes, approved September 20, 1968 (82 Stat. 849)
section 403c of title 50, United States Code.
Senator MonGAN. The subject of today's hearing is the Federal Ac-
quisition Act of 1977, S. 1264. This legislation is of vital importance
to the work of the Armed Services Committee, since it would replace
the existing Armed Services Procurement Act under which military
weapons systems and supplies are acquired. It represents an effort to
revise and update in a comprehensive way the acquisition policy of the
Federal Government and, for the first time, establish a uniform system
for all agencies and departments. In addition, it embodies some im-
portant new initiatives in procurement policy.
This bill represents an enormous amount of effort by Senator Chiles'
Subcommittee on Federal Spending Practices and Open Government,
and by the full Governmental Affairs Committee. I want to take this
opportunity to compliment Senator Chiles and his staff for the job
that they have done in developing this very complex legislation.
Earlier this year, Senator Stennis asked Senator Goldwater and me
to takeon for the full. committee the special responsibility of looking
into a number of related pieces of pending legislation affecting pro-
curement, among them S. 1264. It was the chairman's feeling, shared
by the other members of the committee, that the changes proposed in.
this bill needed to be fully analyzed by this committee in light of our
long experience in defense procurement.
We need to be certain that in replacing the Armed Services Procure-
ment Act we are actually improving the system, particularly as regards
the acquisition of large and expensive weapons systems. In addition,
we want to consider a small number of related questions, such as special
provisions for procurement from foreign governments and special
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
statutory reporting requirements, that fall peculiarly within the ex-
pertise of this committee. It its my hope that we can contribute con-
structively to this bill.
At today's session we seek to frame in general terms the issues re-
lating to S. 1264 that are of concern to the Armed Services Coin-
mittee. We are pleased to have with us Senator Chiles, the principal
sponsor of the bill and formerly a member of. the Commission on Gov-
ernment Procurement, to give us an overview of the legislation and its
purposes. We had also expected to hear from Senator Proxmire-it may
be that he cannot come-who has some specific reservations about the
bill as it relates to defense procurement, based on his long and active
role in overseeing these matters.
Later in this series of hearings we hope to hear from the Defense
.Department and perhaps from other witnesses, though it is not our in-
tention to redo the extensive hearings held by Senator Chiles' sub-
committee.
Senator GoI Dw vrmz. Thank you, Senator Morgan.
I welcome the opportunity to hold hearings along with Senator
Morgan on S. 1264, the Federal Acquisition Act. Senator Chiles, who
is before the committee today, in fact, he just walked in-is the author
of this bill and he has devoted many hours in mastering the difficult
subject of Federal procurement practices.
i might inject, Mr. Chairman, and Senator Chiles and interested
witnesses, that I have been interested in procurement deficiencies as
long as I have been here. I have been requesting of the chairman of
this full committee to establish a subcommittee on procurement prac-
tices, and to allow us to do some really in-depth study. I have many
volunteers in the field who would be most anxious to help, and I hope
next year the chairman will understand the need for this, particularly
in light of Senator Chiles' work.
This bill is far ranging in its reform-repealing many existing
laws and changing many practices. For this reason, along with Sen-
ator Morgan, I intend to give the bill the fullest consideration.
After years of watching the award of contracts, I have feelings
about several acquisition practices of the Department of Defense.
Among those practices, though, is one that stands out in my mind.,
and that is the procedures for noncompetitive or sole source procure-
ment. Most recently, I have had an experience with the Department
of Defense about the acquisition for the Navy of light utility aircraft
called the CTX. This was a multimillion-dollar award to Beech Air-
craft Corp. which was not competed.
I have no argument with the Beech aircraft that was procured.
In fact, I think I have flown every aircraft that Beech has ever
made, and I have to add that they are superb. However, there are
other companies which make aircraft just as well that should have
had the opportunity to compete for this CTX contract.
I questioned this procurement at the time it was made and in Febru-
ary of this year Senator Metzenbaum and I brought suit in the dis-
trict court seeking to inject competition into the decision to award the
contract to Beech. That lawsuit demonstrated to me the difficulty in
succeeding in overturning the decision by an executive agency to
award a sole source contract. From my information, this was not un-
usual. I have been informed that there is not a single successful case,
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/024/97 : CIA-RDP80SO1268A000500030001-5
except in the initial stages, of a disappointed bidder prevailing in
court.
As we review this legislation, it is my recommendation that we
bring before us industry witnesses. I would like to suggest that among
those witnesses be Mr. Russ Meyers, president of Cessna Aircraft Co.,
so we can have before us a real example of a sole source procurement
where a ready, willing, and capable contractor was precluded from
competition.
DOD's reliance on sole source procurement is illustrated by the fact
that of over 200,000 procurement actions,in fiscal year 1976 in amounts
exceeding $10,000, 117,000 were sole source with a total dollar value
of $26 billion.
I understand that an. executive agency needs discretion to award
contracts and to make noncompetitive procurements. IIowever, in cases
of abuse of this discretionary power, I believe that the Department of
Defense should be held to account. This morning I look forward to
reviewing this legislation and to hearing from our two colleagues, Sen-
ators Chiles and Proxmire,.
Senator MORGAN. Thank you, Senator. With your permission, I am
going to ask counsel to come join us at the table.
Senator GOLDWATER. I would like to do the same with the minority
side. Not being a lawyer, it is kind of difficult for me to ask questions
because I never know when to shut up.
Senator MORGAN. You know it is difficult for me and these people
are getting paid to do the job.
Senator GOLDWATER. You are a southerner and I am a westerner and
that is one thing we have in common.
Senator MORGAN. Exactly.
Senator Chiles, you missed all the nice things we had to say about
you before you got here. They may be the last nice things I have to
say, but they are in the record anyway.
Senator CirmLrs. I will read the record, Mr. Chairman.
Senator MORGAN. Good. We are delighted to have you here, we wel-
come you and will be glad to hear from you at this time.
STATEMENT OF HON. LAWTON CHILES, U.S. SENATOR FROM THE
STATE OF FLORIDA
Senator CmLES. Thank you very much. I want to say to you, Mr.
Chairman, and to you, Senator Goldwater, I appreciate the fact that
you have called these hearings. Procurement is something that I have
been concerned with for a long time, and I know, Senator Goldwater,
of your longstanding interest in it.
We all know that procurement is not the most interesting issue on
the Hill. It is not the hottest issue, but it certainly is one of the most
important.
Last year the Federal Government spent over $84 billion to buy
everything from safety pins to submarines. If improved purchasing
practices could cut costs by just 5 percent, we are talking about a $4
billion savings annually, and that certainly is something worth talk-
ing about. My feeling is that improved purchasing practices could do
much more than. that, we could be talking about as much as a 20-percent
saving.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
20
In addition to cutting the cost, I think improved purchasing prac-
tices will give us a much better product, and that is just as important
as cutting costs.
Before outlining the ways in which S. 1264 would change current
purchasing practices, and laying out the essential features of S. 1264,
it is worth taking a minute to review what the purposes and character-
istics of any Government purchasing system should be.
The first question we need to ask is: What are the features of a good
Government purchasing system? Any system should be efficient and
economical. The Government should strive to get the best product or
service available at the lowest cost. That is the fundamental objective
of any purchasing system.
There is one important feature which distinguishes Government
purchasing systems from ones in the private sector: The Government
is not spending its own money, it is spending the taxpayers' money.
Thus it seems fair and equitable that the Government should operate
openly in its purchasing practices, and insure that all businesses have a
chance to do business with the Government. The United States is
unique in this regard. Many other countries have no requirement that
governing purchasing be conducted openly. Since the Revolutionary
War, however, the concept of public advertising has been a central fea-
ture of this country's Government purchasing system.
It would seem, at first, that these two objectives-the need to run
both an efficient and an equitable purchasing system-would conflict.
How can we buy the best product if we have to take all these equity
considerations into account?
The dilemma is easily resolved by relying on a phenomenon which
accommodates both of these objectives: Open competition. Open com-
petition gives each potential bidder the opportunity to compete for
Government contracts. It also allows the Government to rely on the
forces of competition among bidders to get the best product at the low-
est price.
I would like to say that this idea of relying on competition is a new
concept I developed. It is not, however. From the time the Second
Continental Congress established the Commissary General in 1775,
this requirement for open competition has been the fundamental fea-
ture of the Federal procurement system. Competition is not something
which a procurement system can create; competition is a phenomenon
of the marketplace. A good procurement system is one which is able
to go into the marketplace and draw out the competitive forces which
are there.
The purpose of S. 1264 is to establish such a system. These objectives
are not different from the objectives which Congress has always set
for the Government purchasing system. S. 1264 recognizes that the
size of Federal purchasing has mushroomed and the nature of Federal
purchasing requirements has become complex since the laws which
govern the Federal purchasing system were enacted over 30 years ago.
It further recognizes that many of the features of the current system
which were designed to stimulate competition now hinder it.
S. 1264 would do two things to overcome the problems in today's
system. First, it eliminates many barriers to entry into the Federal
procurement system by simplifying and streamlining the system.
Second, it requires the Government to focus on activities prior to
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/0 X07 : CIA-RDP80S01268A000500030001-5
contract award. This emphasis on prepurchasing activities is designed
to make the Government do what any prudent consumer does : to care-
fully check out what it is buying before it actually buys it. It is a
feature which is sadly lacking in today's system.
S. 1264 was not drafted overnight. In the late sixties, Congress was
confronted with cost overruns on major weapons systems, and with
examples of waste and inefficiency in Federal purchasing practices.
These revelations spurred the Congress to mandate a high level review
of the entire scope of Federal purchasing practices by establishing the
Commission on Government Procurement. The Commission, composed
of Members of Congress, the executive branch, and the private sector,
worked for 21/2 years, and in 1973 issued a six-volume final report which
contained 149 recommendations for changes.
I served on that Commission, as did Senator Jackson, who spon-
sored the Senate bill establishing the Procurement Commission. I have
tried to make the implementation of the key recommendations of that
Commission one of my top legislative priorities.
I might say, just digressing, I was a freshman with little else to do,
and I got put on that Commission when Senator Jackson wanted to
run for President the first time. Again having little else to do, I
decided that rather than see six volumes sit on the shelf and gather
dust, we ought to try to take those volumes and see if we could imple-
ment them into law.
S. 1264 builds on the recommendations of the Procurement Commis-
sion. The bill was introduced in 'the 94th Congress, revised and rein-
troduced in this Congress. The Governmental Affairs Committee held
5 days of hearings on the bill last summer and passed the bill out of
committee last fall. Because of the size and importance of military
procurement, the committee agreed to refer S. 1264 to the Armed Serv-
ices Committee in order to benefit from the experience and expertise
this committee has in procurement matters.
Now, I would like to discuss some of the important features of
8.1264.
SINGLE STATUTORY BASE
S. 1264 establishes one statute to govern all executive branch pur-
chasing activities. Currently, military procurement practices are gov-
erned by the Armed Services Procurement Act of 1947, and civilian
procurement by the Federal Property Act of 1949. Each statute has its
own set of implementing regulations, and each statute has been
amended at separate times without regard to the other one. The reason
for this disjointed development of the law stems from the fact that
Congress has not tried to focus on purchasing as a Government-wide
activity. Past laws were usually patchwork solutions designed to cure
specific abuses.
The result has been a number of inconsistences between the two laws,
inconsistencies which have been magnified in the flowdown from
statute to regulation to actual practice. This characteristic cripples
the Government by creating confusion and paperwork which acts to
inhibit many businesses, especially small ones, from competing for
Government contracts. S. 1264 would establish a single, simple regula-
tion for procurement,. applicable to the activities of all the executive
agencies.
Approved For Release 2006/02/07 : CIA-RDP80S01268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
22
S. 1264 puts the responsibility for issuing and revising the single
procurement regulation in the Office of Federal Procurement Policy of
the Office of Management and Budget. That Office was established by
Congress to provide a top-level executive branch focal point for the
development of procurement policies. Again, as you know, many times
we never really have a key focal point for an important.activity set
for the executive branch. We have tried to overcome that problem
with the Office of Federal Procurement Policy.
Its enabling statute stresses the need for openess in developing
policies, including notification of Congress prior to issuing any im-
portant regulations. These important provisions, coupled with similar
provisions in S. 1264, will facilitate effective congressional oversight
of the procurement process.
The benefits of a single, simple procurement regulation for all Gov-
ernment agencies are many :
(1) Efficiency is enhanced by eliminating inconsistent practices;
(2) Redtape and regulations literally are cut in half;
(3) Competition is increased by reducing barriers to entry for busi-
nesses; this is especially helpful for small businesses.
FUNCTIONAL PURCHASE DESCRIPTIONS
S. 1264 requires the Government to state its purchase requirements
in functional terms; that is, to describe the problem to be solved rather
than deciding in advance what specific product will best solve it. A
purchase description sets the ground rules which will govern the com-
petition for the contract. A restrictive, detailed purchase description
will restrict competition; it can lead to favoritism in awarding con-
tracts. Look at it this way : If you let me write the purchase description,
as detailed as I would like to, ]'guarantee, that I could award the con-
tra-et to anyone I wanted to. The extensive use of detailed purchase
descriptions, which is so prevalent in today's system, not only confuses
businesses but restricts competition.
Detailed product descriptions have many other detrimental effects.
Probably the worst thing is the ban on innovation. With detailed speci-
fications, new products with improved design and performance and
lower cost, cannot even be considered by the Government. Detailed
specs often run thousands of pages in. length, are difficult to under-
stand, and expensive to update and maintain. Functional specifications,
on the other hand, are short, simple and easy to understand. They allow
different, approaches to a problem to be considered, encourage innova-
tion, and broaden competition.
I brought with me today a stack of some detailed specifications. This
stack right here contains the detailed specifications that GSA uses to
purchase a file drawer. Both of you, I am sure, at some time have had an
opportunity to go down and purchase a file cabinet. I purchased them
for my law firm. I went to a business supply store.
Before you pick one out, you look at the drawers, you look at the
rollers. You find that one file drawer will extend all the way out, and
another will stop short. You can lean on them and tell how strong they
are. If you line up four or five file cabinets and do these sorts of simple
things, you can pick out the quality cabinets. Then you can deter-
mine whether you want to go on trice or just what you want to do.
That's a pretty good way to buy a file drawer.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07: CIA-RDP80SO1268A000500030001-5
23
When the Government bought file cabinets, it ended up that one
company got all of the Government's business. Then the company
started making change orders, and now we find that the files that the
Government bought don't work. The locks fall off, the cabinets are
dented, and all sorts of other defects. The irony is that we used sealed
bid. procurement to award the contract. But the specifications had all
kinds of requirements which had little to do with commercial file draw-
ers, so we didn't get all of the furniture manufacturers to bid on the
contract.
That is the way that detailed specifications operate and prevent com-
petition, prevent innovation.
Senator GOLDWATER. Would you yield?
Senator CHILES. Yes, sir.
Senator GOLDWATER. I think anyone who has over served on a city
council knows full well what you are talking about. I remember my
introduction in the purchase of fire trucks and the specifications re-
quired a chrome-plated faucet on one side of the truck. Only one com-
pany put a chrome-plated faucet on one side of the truck.
Senator CHILES. You knew what that purchasing agent was up to,
didn't you?
Senator GOLDWATER. Yes.
Senator CIIILrs. Well, we now have GSA in this tremendous scandal.
Part of it, I am sure, is because, over the years, they have used this
practice of having the detailed specifications in the bid packages.
Senator MORGAN. Senator, you mentioned that all these specifica-
tions were for one file cabinet and that only one company got it. What
company was that, do you know?
Senator CHILES. Yes, sir, Art Metal.
Senator MoRGAN. Is that the one we have been reading about?
Senator CHILES. Yes, sir.
S. 1264 does recognize that there will be times when the Government
will have to use detailed purchase descriptions, and provides for their
use. In spare parts or standardization cases, for Instance, S. 1264 allows
the agency to use detailed purchase descriptions.
TYPES OF PURCHASING METHODS
A major consideration in any purchase decision is what type of pur-
chasing method will bring out competition and allow the Government
to buy the best product at the lowest price. The current system states
a preference for sealed bidding, but allows negotiations to be used if
a proposed purchase falls into one of 17 specific categories. The excep-
tion has become the rule in current practice, with the Defense De-
pa.rtm.ent using sealed bidding for less than 10 percent of its purchases.
S. 1264 changes the current law by eliminating the 17 exceptions
which allow for negotiations and replacing them with a description
of those purchase considerations which need to be present for sealed
bidding to generate competition. Under the current system, many
products which could be purchased through sealed bidding are not;
they fall into one of the 17 exceptions. The essence of sealed. bidding is
that it calls for pure price competition to determine who wins the
contract. Thus, S. 1264 snakes it mandatory that sealed bidding be
used whenever the nature of the product to be purchased allows for
competition based on purchase price.
35-250-78-4
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80S01268A000500030001-5
24
Right now-I didn't bring it in but the detailed description for
grits is about this high.
[Indicating about? inches.]
Chocolate is the same way. Coffee, the same way. These are for the
military purchases of these products. Each one is a voluminous mat-
ter of detailed description for a product that your wife and mine com-
petitively shops for every day. They can tell. you all about the
differences and nuances, price, and flavor and everything else, but the
Government goes for all these detailed specifications.
S. 1264 should increase the use of sealed bidding for two reasons :
First, it does not give a blanket exception from sealed bidding to
classes of products; second, the use of functional specifications makes
it easier to consider different types of the same product under sealed
bidding procedures. In my opinion, sealed bidding remains the best
method to buy those products which can be competed on the basis of
price. S. 1264 makes the use of sealed bidding the first consideration
in any purchase situation.
Sealed bidding is not the cure to all the problems in procurement,
however. In many cases, sealed bidding simply won't generate com-
petition or won't bring about the most effective purchase. A prudent
consumer considers more than the sticker price when he buys a car;
he looks at as mileage, frequency of repair records, safety features,
the like. My wife determines whether she likes the color or not.
In the same way, the Government needs to look at design features
and total ownership costs as well as the sticker price when it buys a
major system, or contracts for advanced research and development.
It would be imprudent to expect; the Government to buy F-15 fighters
through scaled bidding; much more than the sticker price needs to be
considered. Competitive negotiations allow the Government to compete
other factors in a purchase, such as quality of design and total owner-
ship costs.
Current law says very little about negotiations. It gives little guid-
ance as to how negotiations should be conducted, and barely distin-
guishes competitive negotiations from noncompetitive negotiations. As
a result, under today's system, once you decide not to use sealed bidding,
it is almost as easy to make a sole source contract as it is to use compet-
itive negotiations. So, once you find one of those 17 exceptions you can
say exception 14 applies, so we will just go sole source, even though
you still could have and should have competitive negotiations.
S. 1264, on the other hand, makes a clear distinction between com-
petitive and noncompetitive negotiations. It states that competitive
negotiations, when used in the appropriate circumstances, is a valid
way to obtain competition. On the other hand, S. 1264 makes noncom-
petitive negotiations, or sole source contracting extremely difficult to
use.
For competitive negotiations, S. 1264 sets ou.t some such needed
ground rules to insure that each competitor will be treated fairly. It
requires the Government to indicate the relative importance it plans
to attach to each evaluation factor at the outset of each competition. It
also sets up a definite start and finish to the negotiation process, and
prohibits practices such as auct:ioneering, which have led to buy-ins
and cost overruns in the past. Generally, S. 1264 calls for a limitation
on detailed negotiations early in the negotiation process. The li.mita-
Approved For Release 2006/02/07 : CIA-RDP80S01268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
25
tion does not prevent the Government from talking price issues with
each. competitor, nor does it force the Government to commit itself to
a single contractor prematurely. This limitation is intended to. elim-
inate the current practice of drawing up definitive contracts with each
competitor before selection, a costly and time-consuming process. It
also is designed to encourage each competitor to come forward with his
best offer right away, rather than starting the protracted gaining
process that is so prevalent in the procurement process today. The
gaming is all this jockeying before you put your best offer on the table,
and many times the Government fails to get that best offer because it
gets cut off somewhere in between.
Finally, S. 1264 is intended to prevent the Government from com-
bining aspects of each competitor's proposal with every other proposal.
That practice, in the past, has led to the purchase of unproven products
which only exist on paper, and which combine characteristics taken
from every competitor's proposal.
For noncompetitive, or sole source negotiations, S. 1264 takes an
entirely different approach. I believe that there is too much unjustified
sole source procurement today, and S. 1264 is designed to make
it much more difficult to award contracts without the benefit of
competition.
Before making a sole source award, agencies would have to meet two
requirements.. First, the agency must make a detailed justification for
going sole source. The determination does not ask : "What exemption
are you. using this time?" but rather, "What efforts did you make to
find other firms? Why are these delivery schedules so short? What are
you doing to increase competition the next time around?" That de-
tailed determination then must be approved at a high level in the
agency, a tightening of current procedures. We are not going to allow
a low level official or contract officer to be making that determination..
We are escalating that decision to someone who has to be fully aware
of what he is doing.
In addition to the determination requirement, S. 1264 forces the
agency to subject its intention to award sole source contract to an
actual market test. It requires that notice of any noncompetitive award
be published for 30 days in Commerce Business Daily.
If any company comes forward in response to the notice and has the
capability to meet the job requirements, then the agency must award
the contract competitively. This approach recognizes that internal de-
terminations, no matter how detailed, represent the agency's opinion
as to how much competition exists. S. 1264 calls for the marketplace
to determine if competition exists, not the agency.
After a contract is awarded, the Government must have the ability
to assure itself that a contract price is reasonable, and that the quality
of the product meets the standards called for in the contract. Effective
contract auditing and cost controls are an absolute necessity if we are
serious about spending the taxpayer's dollar prudently.
Because there are two procurement statutes and a multitude of dif-
fering audit systems, however, Government audit requirements have
become confusing, inconsistent, and overlapping. The absence of
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
26
standard audit procedures causes agencies to duplicate and diffuse
Government surveillance efforts, and imposes a heavy regulatory and
paperwork burden on businesses.
S. 1264 establishes uniform, consolidated audit procedures which we
hope will reduce paperwork for businesses, while strengthening and
focusing Government audit efforts. The Truth in Negotiations Act is
retained and extended by statute to all executive agencies. The Truth
in Negotiations Act allows the Government to adjust contract prices
downward if a contractor submitted inaccurate cost data or pricing
data.
Section 306 of S. 1264 provides the contracting agency and the Gen-
eral Accounting Office with the authority to examine the contractor's
books and records. This section is based on the access-to-records au-
thority currently contained in the Armed Services Procurement Act,
with two changes. First, it requires aoencies to coordinate their inspec-
tion and audit responsibilities, thereby eliminating duplicative audits
conducted by different agencies. This will save paperwork for the con-
tractor and allow the Government to use its auditors more effectively.
;Second, it gives the agencies the authority to conduct "should cost"
audits to determine if a contract work is being performed efficiently
and economically.
The most effective way to insure efficient contract performance is to
make sure that contracts are awarded competitively, and that the
,contractor, not the Government, bears the risk in performing the con-
,tract. The erosion of competition in today's system has led to the crea-
tion of a system of elaborate supplemental controls to assure prices
,,equivalent to those obtained through competition. Those controls are
,,necessary for large contractors, and for contractors who do little com-
petitive business. However, smaller businesses, businesses operating in
a competitive atmosphere, and businesses willing to bear all the risk for
their contracts, must have strict internal cost controls if they are to
stay in business. So, in this bill, we try to recognize that. While we
give the Government broad access to a contractor's records, we allow
companies whose business is predominantly competitive, and who have
limited cost-type contracts with the Government, to apply for-this
is important-apply for a 2-year waiver from certain management effi-
ciency requirements.
This waiver is designed to focus those requirements where they are
needed most-on large contractors and on contractors who operate in a
noncompetitive environment. It does not touch controls over indi-
vidual contracts. On the contrary, these controls are broadened and
strengthened by S. 1264. All costs must be legal and necessary for
performance.
Any company which does more than $10 million in noncompetitive
Government contracts could not apply for this waiver. Any company
which has more than 25 percent of its revenues in noncompetitive con-
tracts could not apply for this waiver. This waiver lasts for 2 years
and may be canceled by the agency at any time. The waiver exempts
eligible contractors from reviews of the reasonableness of elements of
a contractor's indirect or overhead costs. The premise behind the review
is that companies which operate in a competitive environment will be
forced to control their management costs, and will do so far more ef-
fectively than extensive surveillance would. This waiver provision is
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
27
similar to the CIV AS concept the Defense Department uses, but is far
stricter in its eligibility requirements and applies only to smaller
contractors.
Basically, what we are trying to do is to bring more small contractors
into the process. We are trying to say to them, if 75 percent of your
business is going to be competitive, we are going to take away sonic of
the. paperwork requirements that would burden you or we are going to
allow you to apply for the waiver of them. Then we will allow the
Government at its convenience to determine whether it wants to grant
the waiver or not.
Section 509 provides a waiver from the requirements of the Cost
Accounting Standards Board under the same eligibility rules. This
waiver is similar but not identical to one which the Cost Accounting
Standards Board itself put in effect earlier this year.
This question is: Should the Government have one standard for all
of these waivers or should the Cost Accounting Standards Board be
allowed to use a different standard from everybody else? To me, it only
makes sense that you have one standard for a waiver. To do otherwise
goes against one of the basic goals of this bill-to eliminate unneces-
sary inconsistencies in the procurement system.
I can appreciate the Cost Accounting Standards Board's desire to be
able to make its own exemptions without regard to all the other agen-
cies in the Government, But I think the needs of the entire Govern-
ment must override the concerns of one agency.
In closing, I would like to raise an issue which I hope the committee
will give careful consideration to: The question of U.S. purchases
from foreign governments and international organizations. The De-
partment of Defense suggested that S. 1264 be amended to enable the
Government to make such purchases without regard to the procure-
ment laws. The Governmental Affairs Committee was sympathetic to
the concerns raised, but felt that the At-mod Services Committee should
consider the impact of any such proposal.
Furthermore, I was puzzled that the Defense Department did not
set forth specific examples of problems which have arisen from the
lack of such authority today. In any case, I think that if such an au-
thority is granted, it should be carefully limited, and Congress should
play an active role in its operation.
What I have tried to do today is set out the basic purposes of S. 1264,
and discuss some of the major changes it makes in the current pro cure-
ment system. I know that other matters will need to be worked out, and
1. stand ready to work closely with this committee in working out any
such questions.
Again, I want to thank each of you, the committee and the staff, for
the interest that you have shown in this legislation and in the whole
subject of procurement reform. I appreciate again your commitment
to move this legislation forward expeditiously.
Senator MorOAN. Thank you, Senator Chiles, for a very informative
and interesting presentation.
Senator Goldwater?
Senator GOLDWArrrt. I just want to compliment the Senator on his
basic approach to the problem that, in my opinion, is one of the most
serious that we face on Capitol Hill. Abuse in procurement has been
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
28
going on not just for a few years but probably ever since we have been
a Republic.
I would like to ask the staff to do something and do it within the next
10 days. I have to keep getting back to my basic expressed interest in
this so-called CTX contract. This may be just an example the staff
can turn up, but I have a feeling that in many of these noncompetitive
purchases the Government is paying as much or more than the item can
be purchased for by a private citizen in a retail sale.
Senator CiiiLns. We certainly found that out in the GSA. We found
that a private citizen can get a better deal on a calculator or adding
machine than the Government could by going down to any one of the
discount stores. He could buy the identical product at a price of say
$64 that the Government, buying in tremendous quantities, was paying
$80 for.
Senator GOLDWATER. That would be the point of this investigation
and I am going to insist on it being made. If it is not made, I will at
my own expense have an outside investigation made.
It is my understanding, and I can't prove it, that the Government is
paying as much or more for these aircraft as I could ?o to a dealer and
buy them for. I may be wrong, but if I am right, I think it ought to be
spread out on the record to show what it has cost us.
Again, I am not questioning the quality of the aircraft, I am ques-
tioning the wisdom in throwing out four or five other possible competi-
tors who can provide just as good an airplane, at probably much lower
prices. When the total buy of this aircraft is finished it will be close
to $70 million. I would hate to think I could go out and buy that many
aircraft on the open market cheaper than the Federal Government
could.
I am going to ask the staff to do that. I would like to have the results
within 10 days, and if anybody objects to having it done, let me know
because I have a staff downtown that will do the job for me.
Senator MORGAN. I think it is something that should be done and I
doubt there is a Member of the Senate that does not know of specific
cases that have been brought to his attention, primarily by his own
constituents, because those are the ones who normally come to us. We
have had examples in North Carolina where sole source suppliers were
,selected without apparent justification, yet very little could be done
about it. We will pursue that.
Senator CHILES. I might just say to Senator Goldwater that I would
appreciate it if you would have your staff even check this out. I know
your concern with the CTX problem. I know of the lawsuit that you
filed. S. 1264, would give a disappointed bidder standing to sue in court.
Section 705 gives an aggrieved bidder standing to sue in the Federal
district court. First, of course, he was to get a bid protest decision
from the Comptroller General, but I think you had that in your case.
Second, I think that S. 1264 says that an abuse of discretion not to
award a contract would upset the award.
Senator GOLDWATER. I might say that this feature of your bill is one
of the best liked features that my contractors who have contacted me
have expressed, the fact that you no longer have to go through an
agency or put up with being stopped by an agency, as Senator Metzen-
baum and I were stopped by the Navy Department. The company can
sue direct. I think that is very important to have in there.
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
29
Senator CiiiLns. Yes, sir. The bill takes the approach that it is not
up to the agency to have the sole discretion as to how much competition
is needed. The marketplace must be tested. S. 1264 requires agencies to
advertise potential sole source contracts for 30 days. Capable com-
panies which come forward during that period must be allowed to
compete for the contract. In the CTX case, other companies would have
seen the sole source notice and said, wait a minute,, we can build that
plane, we are ready to build that plane. Then I think Government
would be put on notice that competition was mandated. On that basis,
I think the court would say that a disappointed bidder had a rational
basis for a cause of action.
In the CTX case the court said that the agency had a rational basis
for its action. Would the agency have such a basis under S. 1264?
S. 1264 provides for the 30-day notification procedure that I men-
tioned before, the committee report expands on that by saying the
following, and I quote :
Where there is a doubt as to whether a firm has the capability to meet the
requirements of the contract, that doubt is to be resolved by initiating competi-
tive procedures.
In the CTX case there was douibt ; so S. 1261 would 'call for,initiat-
ing of competitive procedures.
Senator GOLDWATER. Let me make sure in this case about the state-
ments you have just made, because the word commonality was the word
that the Secretary of the Navy hung his hat on, and the word com'monality was inserted in, I think, the I-louse Appropriations Commit-
tee report. Commonality was interpreted to mean that inasmuch as
the Army and the Air Force had purchased this aircraft, that it should
also be purchased by any other Government agency requiring a light-
weight personnel carrier. That is what they hung their hat on and I
would like'to see your bill make it perfectly clear that such legerde-
main,' if I might use that word, as exercised by the Appropriations
Committee, not be allowed to have a bearing on this.
Senator CrrtES. I think we can try to do that. I think one of the
ways we try to avoid sole source contracts is to use functional specifica-
tions and to have a simple system.
Again, OMB Circular A-109 is going to help a lot now, because
agencies now have to go off and compete alternative functional ap-
proaches at the front end of a major acquisition. That in itself will pro-
vide some help in the future.
Senator MORGAN. Senator Chiles, Mr. Roberts would like to pur-
sue a line of questioning for the committee.
Senator CiiiLES. I just say if you are going to use your brains I may
use some of mine, too.
Senator MoRGAN, Feel free.
Mr. ROBERTS. Thank you, Mir. Chairman.
Senator, I wonder if I could ask a couple of questions related to
the DOD proposal on purchases from foreign governments. We have
done some work on this and I gather that your subcommittee's view
was that, in effect, DOD had not made the case for a complete waiver
authority, is that right?
Senator CyiaLES. DOD raised the concern and emphasized that it
wanted an exemption for these situations. But they wouldn't tell us
exactly how broad the exemption should be, and they couldn't give us
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80S01268A000500030001-5
30
any specific examples. I can understand their problem and I guess it
is a sensitive question for them. I think that they are worried about
any exemption because they are going to draw some heat from those
Members of Congress and others who want to strictly buy American.
We recognize the problems DOD has and the efforts that the Con-
gress, especially this committee, is making to try to provide some com-
monality of products in NATO? We all recognize that they all can't
be American products. In any case, I didn't want to make a.r overall
exemption without looking to the Armed Services Committee for some
guidance.
Mr. ROBERTS. If some waiver authority were given, would you favor
a system that required the Department to obtain by contract as much
equivalent protection as it possibly could in relation to each of the
waived requirements?
We have heard, for example, some of the foreign governments object
to a particular standard contract provision, and it has been clear to
us that they might be able to get something slightly less but still along
the same line.
Senator CHILES. I think that would be a good approach especially
since most of the foreign laws are nowhere near as strict as ours. Many
times there is close cooperation between a foreign government and
their companies; they are almost one and the same. Many times one
of their companies is used as an instrument of foreign policy of that
country.
When you are dealing with Krupp for instance, you could just as
well be dealing with the government.
Mr. ROBERTS. Do you see a possibility for abuse there 2
Senator CHILES. I think
Mr. ROBERTS. If we have what is in effect a purchase from a foreign
company but through a foreign government or if we have a quasi-
public company, might not our American corporations be concerned
about these waivers for competitive reasons?
Senator CHILES. Very much so, because foreign governments offer
much different incentives. In many instances, foreign businesses are
given tax incentives and other subsidies which make it impossible to
have meaningful price competition. You cannot have equal price com-
petition between one of our companies which is completely unsubsi-
dized and say, a Japanese, German, or French company which benefits
from government subsidies.
Senator GOLDWATER. Would you yield at that point?
I wish your staff would consider something that this full commit-
tee is faced with every year. I will try to give quickly two examples.
This relates to foreign purchasing. We want to sell the F-16 air-
craft to as many countries as we can but they make a little deal : If
you don't buy my machinegun we are not going to buy your F-16, so,
we wind up buying a machinegun. It is a good machinegun, but it has
not been bought with the recognition of the fact that the American
manufacturer could probably have made it cheaper.
We have the same situation prevailing to some extent on the main
battle tank which we have been Working on for years, in cooperation
with the Germans, where they want us to buy their cannon or else.
I don't know how to approach that. We might be able to build a better
cannon-I doubt it-and if we did, we might be able to build it cheaper,
which I doubt.
Approved For Release 2006/02/07 : CIA-RDP80S01268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
31
I-. would like to have ;your staff thinking about how this committee
has to react to a situation where they sort of shove it in your face and
say if you don't buy this simple little thing, we are not going to buy
that expensive. big thing.
Senator Cirrt,Ls. We will be glad to look at that. There again we are
talking about policy questions more than does staff opinions on the
mechanics of a system. We are not going to have our cake and eat it
too. We are not going to be able to sell them all the F-16s unless they
participate in the contract, either through manufacturing the plane
over there, or having therri supply a subsystem like a machinegun.
Those are policy decisions that are traded off. at some level.
Senator Gor vwA'rrrz.'I'han]c you.
Mr. ROBERTS. Senator, as you know, the Defense Department has ex
pressed some.concern that the structure of S. 1264 might restrict them
too. We are not going to be able to sell them all the F-16s unless they
are interested in.
Senator Crrirrs. Yes, sir.
Mr. ROBERTS. I wonder if you would elaborate for just a moment for
the committee on the question of maintaining a mobilization base. It
is your view, as I understand it, that mobilization base procurement-
:For example, the production of ammunition-would be allowed under
this bill ?
Senator CHILES. We tried to recognize that the Department has a
special need to keep vital facilities and skills available because of the
event of a national emergency. Things like ammunition factories.
The Armed Services Procurement Act of 1947 recognizes that need by
giving the Defense Department the authority to limit competition to
maintain the defense mobilization base. That authority was not spe-
cifically set out in. S. 1264 but it was recognized and authorized in the
committee report. We think it is important to maintain that authority.
If your committee feels that it should be specifically set out in the
statute itself, we wouldn't have any problems with that.
Mr. RRoEERTS. Let me turn to a related question about another non-
competitive area in Defense Department purchasing, and that is the
problem of follow-on procurement. There you often have problems con-
cerning proprietary technology, and Defense complains that it needs
tremendous flexibility to go noncompetitive where it is dealing with
large follow-on systems. Lknow there is potential for abuse there and T
wonder how you feel S. 1264 is going to affect this area?
Senator Crr.7r,rs. What we did in the bill was lift the, language of
an earlier procurement act, a defense authorization bill. In section
304 (b), the bottom of page 58 of the bill, we provided where there is
no commercial usage of the product or service to be acquired under
this section, and the agency head determined that substantial follow-
on provisions of such product or service will be required by the Gov-
ernment, the agency head shall., when he deems fit, take appropriate
action through contractual provision.s, or otherwise, to provide the
Government with a capacity to establish one or more other competitive
sources.
That is really the law now. I don't think we really are disturbing the
body of case law that says if you have proprietary data and the
Government wants to establish a new source, they have to buy your
proprietary data, that you are entitled to something for it.
35-280-78-5
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
:iv
We didn't want to disturb that but we did think that we should keep
the same authority that the Government now has, for example, let's
say the Government has a contract for a cluster bomb and they now
decide they are ready to go into a larger production. They know that
the company that developed it won't be able to supply all of their
needs, or that they could generate lower prices with more firms bidding
on the contract. That's the type of situation where they may want to
set up other sources. They could do that under this bill. I do think,
however, that same fellow who developed the bomb, if he has his
proprietary data, would still have all of his rights. So I don't think we
will disturb that.
Senator MORGAN. Lawton, I wonder if we could interrupt a minute
and let you bring your specifications up here and get a picture. Our
thought is we might got some people who would be interested in com-
ing in and talking with us.
(Discussion off the record.]
Senator MORGA T. I apologize for the interruption but it was so illus-
trative T thought it would help.
Mr. Ronrwrs. T wonder if I could turn for a moment to section 509"
of the bill relating to the waivers of surveillance authority in certain
instances.
You described in your statement the way this operates and T wonder
if you could tell us iit a little more detail about the 75 percent, competi-
tive test. You know that some have criticized this test, as not neces-
sarily leading to the conclusion that the 25 percent of the business that
is noncompetitive has the kind of cost and price control that you are
looking for.
What was the background on the 75)-percent test?
Senator Crnt,ts. Well, I keep repeating this but I think it is im-
portant to repeat. First, these requirements are necessary before you
can apply for a waives. The Government itself is the one who decides
whether to grant the waiver. So there is nothing automatic about it.
There is nothing that says if you meet the 75-percent test and if you
meet under $10 million test you get. the waiver. It just allows you to
apply for a waiver which is grran:ted strictly at the convenience of the.
Government. The Governor nt decides when it feels that there is
enough competition present so that it would be better off sending its
inspectors to look at the big contracts, the sole source contracts. We
have to stay on top of those, and not be down nitpicking at the little
people who operate competitively all the time.
It. was our thinking that, if a company does 75 percent of its business
is in the pure competitive sector, they are root hoggin or dying. They
have no reason. to not hold their costs down. in . facg t, they wouldn't
be in business very long. if their costs aren't held down.
The reason we put. in these supplementary inspections and these
procedures to start with, these standards, was because we had people
who (lid all their business with the Government. All that business, or
most of it, was sole source, and there is no reason for them to try to
keep their overhead down, no reason for them to keep track of what
they are paying out because t r lot of it was on a cost-plus basis. They
were not being penalized for being inefficient. T think you have to put
in the cost accounting standards, yon have to have extra inspection
procedures. We are, all for them. But to impose all of these require-
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
33
ments on the smaller guy doing less than $10 million, who is 75 percent
competitive, is a waste of the Government's effort. It is just adding
the kind of paperwork requirements that makes that small businessman
say, "I don't want to do business with the Government. I have to add
additional bookkeepers, I have to add additional records, and I have
to have people around here all the time. Hell, I am going out and
compete on other things and won't foot around with the Government."
This is depriving the Government.
Mr. RoBa,Rrs. I gather front your description, and in talking with
the staff, that this would be a significantly different system than the
one Defense had tried out and had been roundly criticized for years
ago?
Senator Czar, s. That's right. Again, all during the Procurement
Commission hearings we held, the private sector kept talking about
these controls, They kept saying that the Government is putting their
effort in the wrong place.
Instead of doing the job and doing it thoroughly on the sole source
companies, the Government inspectors end up spending all of their
time inspecting the people who are competing. That isn't necessary.
Furthermore, we also felt that it was worthwhile to hold something
out to the follow who is going to operate at his own risk, to relieve him
of a little of the burden of redtape.
This is the hardest thing to get across to people. For this waiver, we
have to recognize that the Government has the option to grant it, the
Government can terminate it any time, and they still have the right
to go in and charge the contractor, if he has overpriced any items.
Now, you run this waiver by the Cost Accounting Standards Board,
and yon will find that they hate it like the Devil hates holy water.
That's because it is getting in on their territory, and could cut down
their budget a bit. After all they might not need all of those inspectors,
if they can't nitpick all of the little people that are in the block.
Mr. RoBERrs. I wonder if I could turn for a moment to the sole
source exception procedure that exists in. the bill.
As I understand it, the sole source decision would always have to
be accompanied by the notice and a 'O-day delay period?
Senator CABLES. Yes, ,sir.
Mr. Rouvi rs. Is there any concern on your part that the 30-day
delay might, in sonic instances, create needless delay in an .important
procurement? It is your intention that there be circumstances under
which that would not be required, is that not correct?,
Senator CHILES. We. do provide for a waiver of that requirement in
emergency circumstances. It is our feeling that in most cases, 30 days
in, the front is 30 days very well spent. It should help to keep cost
overruns down, it should reduce the number of claims and change
orders, and it could keep bid protests down. In addition, quite frankly,
we want to discourage sole-source procurements when there is competi-
tion that is out there.
Mr. RoJ]?Rrc. Tlas this sort of system been tried, to your knowledge,
in a state procurement system or elsewhere-this kind of sole source
market test?
Senator CIU LA"s. I don't think it. has. In fact, we wrestled for a long'
time with the problems of how to prevent l Ito Government horn going
sole source, while recou'niziag that there iiic sonhe products you arc
Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
 Approved For Release 2006/02/07 : CIA-RDP80SO1268A000500030001-5
34
,Mill going to Iruy noncoin pctitivcly. l e kept drinking about having
someone in the agency above the contracting oifd.cer make that deter-
Initiation, that checkoff. We realized though that if you escalate that
decision rip to the to 1) of the agency, you would elyd np with a rubber'
sunup cleterrnination. No one benefits i'r'oin that.
We concluded that there had to he sonic outside check, and the thing
we came up with was a market place notification. Si.zch a notification
would nit, conipan es on notice