FEDERAL ACQUISITION ACT OF 1977 REPORT OF COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE TO ACCOMPANY S. 1264 TO PROVIDE POLICIES, METHODS, AND CRITERIA FOR THE ACQUISITION OF PROPERTY AND SERICES BY EXECUTIVE AGENCIES TOGETHER

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80S01268A000500030002-4
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• Document Creation Date: December 19, 2016
• Document Release Date: January 4, 2006
• Sequence Number: 2
• Publication Date: March 22, 1978
• Content Type: REPORT

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Calendar No. 657
95TH CONGRESS
2d Session
SENATE
{REPORT
No. 95-715
FEDERAL ACQUISITION ACT OF 1977
REPORT
OF TIIE
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
TO ACCOMPANY
S. 1264
TO PROVIDE POLICIES, METHODS, AND CRITERIA FOR THE
ACQUISITION OF PROPERTY AND SERVICES BY EXECUTIVE
AGENCIES
together with
ADDITIONAL VIEWS
MARCH 22 (legislative day, FEBRUARY 6), 1978.--Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
24-195 WASHINGTON : 1978
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COMMITTEE ON GOVERNMENTAL AFFAIRS
ABRAHAM RIBICOFE, CONNECTICUT, Chairman
HENRY M. JACKSON, Washington
EDMUND S. MUSKIE, Maine
THOMAS F. EAGLETON, Missouri
LAWTON CHILES, Florida
SAM NUNN, Georgia
JOHN GLENN, Ohio
JIM SASSER, Tennessee
MURIEL HUMPHREY, Minnesota
CHARLES H. PERCY, Illinois
JACOB K. JAVITS, New York
WILLIAM V. ROTH, JR., Delaware
TED STEVENS, Alaska
CHARLES McC. MATHIAS, Ja., Maryland
JOHN C. DANFORTH, Missouri
H. JOHN HEINZ III, Pennsylvania
RICHARD A. WEGEIAN, Chief Counsel and Staff Director
JOHN B. CHILDEns, Chief Counsel to the Minority
ELIZABETH A. PREAST, Chief Clerk
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I. Purpose
II. Summary
III. Need for the legislation 3
IV. history and background of Government Procurement 6
V. History of the legislation 8
VI. Explanation of committee action 13
VII. Discussion of key issues 18
VIII. Section-by-section analysis 27
IX. Evaluation of regulatory impact of S. 1264 71
X. Cost estimate_ 72
XI. Rollcall votes in committee 72
XII. Changes in existing law 72
XIII. Additional views 116
XIV. Text of S. 1264 as reported 128
APPENDIXES
Appendix A?Letter from Jim McIntyre, Acting Director, Office of Man-
agement and Budget, October 28, 1977 151
Appendix B?Letter from Robert F. Keller, Acting Comptroller General
of the United States, -U.S. General Accounting Office, October 27,
1977 152
Appendix C?Letter from Alice M. Rivlin, Director, Congressional Budget
Office, U.S. Congress, October 17, 1977 153
(m)
CONTENTS
Page
1
2
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95T11 CONGRESS
2d Session
SENATE
Calendar No. 657
No. R972775
FEDERAL ACQUISITION ACT OF 1977
MARcir 22 (legislative day, FEBRUARY 6), 1978.--Ordered to be printed
Mr. CHILES, from the Committee on
Governmental Affairs, submitted the following
REPORT
together with
ADDITIONAL VIEWS
[To accompany S. 12641
The Committee on Governmental Affairs, to which was referred
the bill (S.-1264) to provide policies, procedures and criteria ifor the
acquisition of property and services by executive agencies, having con-
sidered the same, reports favorably thereon with an amendment- and
recommends that the bill as amended do pass.
The amendment is in the nature of a substitute.
I. PURPOSE
This legislation repeals the two basic laws governing Federal pur-
chasing and replaces them with a single, modern statute applicable to
all executive agencies which is designed to stimulate competition and
encourage innovation. Past reforms in procurement have usually
focused on a particular aspect of the process, or have, attempted to
redress a symptomatic abuse in the system. Thus, the current laws
controlling Federal purchasing have become fragmented - and : out-
dated, and have led to the creation of a regulatory system whose
restrictions and inconsistencies actually hamper rather than facilitate
the efficient, economical purchase of products and services by the
Government. .
This legislation which has its origins in the recommendations of the
Commission on Government Procurement, looks at the acquisition
process in its entirety, and seeks to correct the root causes of the prob-
lems in the current system.
(1)
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II. SUMMARY
The initial sections of S. 1264 as amended set forth policy con-
siderations and definitions.
Title I?Acquisition Methods and Regulatory Compliance.?Tithz,
sets forth three equally valid alternative purchasing methods. It also
requires the Office of Federal Procurement Policy (OFPP) in the
Office of Management and Budget (034B) to prepare a single procure-
ment regulation covering executive branch acquisition. It requires
OFPP to include an assessment of agency compliance with the act in
its annual report to the Congress.
2?Aequisition by Competitive Sealed Bids.?Title 2 deals
with the first of the three purchasing methods: competitive sealed bids.
It establishes criteria for its. use,
and sets procedures for publicizing,
evaluating, and awarding sealed bid acquisitions.
Title 3?A.cquisition by Competitive Negotiations.?Title 3 deals
with the second purchasing method: competitive negotiations. It sets
forth competitive negotiation procedures and establishes criteria -for
the use of noncompetitive or sole source negotiations. It also defines
both the General Accountine. Office (GAO) and executive agency
access to records authority, and extends the Truth in Negotiations Act
(Public Law 87-653) to civilian agencies.
Title 4?Acquisition by Simplified Small Purchase Methods.?Ti tie
4 establishes procedures for the third procurement alternative: for
purchases less than $10,000.
Title 5?General Provisions.?Title 5 establishes general provisions
which affect Federal acquisitions, including authority for multiyear
contracts, progress payments, cancellation of solicitations, rejections,
and for a limited waiver of certain Government surveillance require-
ments. It also requires periodic reviews of specifications, establishes a
program to assist minority owned businesses, calls for prompt pay-
ment of money owed by the Government to a contractor and sets out
requirements for publicizing Government contracting opportunities.
It continues the current ban on the use of cost-plus-percentage of cost
contracting method, states a preference for fixed price contracts and
requires Government employees to report any evidence of collusive
bidding practices to the Attorney General
Title 6?Delegation of Authority.?Title 6 sets forth the extent. to
which the authority to make determinations required by the act may
be, delegated within an executive agency. The delegability of certain
decisions, such as those related to noncompetitive contracts, is limited.
Title 7?Protests.?Title 7 confers statutory recognition on the "bid
protest" function that the Comptroller General has performed for over
50 years. It allows for judicial review of bid protest decisions as pro-
vided. by the Administrative Procedures Act.
Title 8?Applicability of Subsequent Laws.?Title S requires all.
subsequent laws which amend this Act to specifically so state. The
intent of title 8 is to preserve the concept of a single statutory base
in the future and to codify all subsequent laws relating to Federal
acquisition in the. same part of the United States Code.
Title 9?AmeMments and Repeals.?Title 9 makes necessary con-
forming amendments and repeals.
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III. NEED FOR TIIE LEGISLATION
In 1977, the Federal Government spent $84 billion for the acquisi-
tion of property and services in more than 13 million contract actions.
The framework of statutes and regulations governing Federal pur-
chasing is outdated, inconsistent and needlessly complex. The result is
a cumbersome system which hinders the efficient, economical provision
of products and services to the Government in an equitable manner.
LACK OF A SINGLE STATUTORY FOUNDATION
Two basic statutes provide the foundation for the entire framework
of Government contracting: the Armed Services Procurement Act of
1947, which applies to the procurement activities of the Defense De-
partment and the National Aeronautics and Space Administration
(NASA), and chapter IV of the Federal Property and Administra-
tive Services Act of 1949 which generally governs the purchasing
activities of civilian agencies. Studies by the Commission on Govern-
ment Procurement revealed more than 30 troublesome inconsistencies
between these two basic statutes. Further, the procurement regulations
which the General Services Administration (GSA) issues for civilian
agencies are precluded from affecting specified functions of certain
designated civilian agencies. This impairment provision has created
an additional proliferation of inconsistencies in the "fiowdown" from
statutes to regulations and procedures. This in turn has added signifi-
cantly to procurement-related costs incurred by the Government, and
has generated confusion and misunderstanding among businesses.
Although some of the inconsistencies stern from special problems
originally encountered by one agency, most of them arise simply
because there are two basic statutes and because each has been amended
at separate tunes without regard to the other. The existence of two
statutes has hindered the ability to focus on procurement as a Govern-
ment-wide activity, and has encouraged parochial interests to obtain
special statutory consideration for narrow concerns.
LACK OF MEANINGFUL COMPETITION
It has long been the policy of Congress that the Federal Government
ought to award contracts competitively. Stressing effective competi-
tion in Federal procurement has two fundamental benefits: first, it
saves the Government money by encouraging firms to offer better
products at lower prices, and second, it serves to minimize favoritism
and collusion by giving all qualified sources the opportunity to com-
pete for and to win Government contracts. Yet, current procurement
statistics show a failure on the part of procuring agencies to carry out
the mandate for competition. In fiscal year 1976, the Defense Depart-
ment awarded over $.23 billion dollars in contracts without competi-
tion ; that represented over 57 percent of the $40 billion it spent on
procurement. This number included 117,000 noncompetitive awards
greater than $10,000, of which 31,000 were greater than $100,000.1 It
should be noted that most criticism of Government procurement
1 Office of the Secretary of Defense, "Military Prime Contract Awards," Fiscal Year 1976.
P. 44. See also additional written statement submitted by Dr. William Perry, Director of
Defense Research and Engineering, U.S. Department of Defense, during hearings on S. 1264,
July 1977.
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policies has focused on the activities of the Defense Department.
Yet a recent GAO study revealed that lack of competition in
procurement is every bit as widespread in civilian agencies as it is in
the Defense Department. That study, which surveyed a sample of the
procurement activities of 5 major civilian agencies found that, of $218
million in negotiated procurements, $158 million or 61 percent were
awarded noncompetitively.'
This legislation tightens up the current approval process for pro-
posed noncompetitive contracts, and then requires an actual notifica-
tion of the marketplace to ensure that there is only one qualified
supplier. Thus an agency can no longer determine on its own that
a contract can be awarded noncompetitively, but instead must allow the
determination to be made by the market itself.
INABILITY TO BENEFIT FROM INNOVATION
Specifications are product descriptions that the Government uses for
purchasing purposes. Unlike industry product standards which cover
safety requirements or which test materials, Government specifica-
tions often outline the actual design of the product (e.g., a mousetrap)
the Government wishes to purchase. These product descriptions can-
not be used to purchase new products unless they are continually
revised and reissued. Yet the Commission on Government Procure-
ment examined Government specifications for commercial products
and found that many were so old that their value was marginal.' In
January of 1976, the General Accounting Office found that 56 percent
of the 6,148 Federal specifications were over 5 years old, and 12 per-
cent were over 15 years old.4 One reason for such a large number of
old specifications is the cost involved in preparing and maintaining
them.
The General Accounting Office found that the average cost to de-
velop new specifications for a single product was over $17,000 in fiscal
year 1976, and the average cost to revise an existing specification was
almost $7,000. By contrast, the average cost of preparing a simple pur-
chase description, as would be generally required by this legislation,
was $1,100.5 Finally, the Commission on Government Procurement
I ound that many Government specifications were so complex that they
inhibited or excluded the use of commercial products.
When this committee acquired the specifications necessary for a
supplier to bid on a Federal purchase requirement for mousetraps, the
complete specification was over 102,000 words and weighed 2 pounds.
An attempt by the committee to acquire the specifications and related
documents necessary to bid on the purchase of hominy grits by the
Government took over 3 months and ended in failure when some of
the required documents were found to be out of print. The documents
accumulated by the committee approached 1 foot in height.
Such overspecification discourages competition by limiting the Gov-
ernment's ability to use products already available in the commercial
2 "Competition For Negotiated Government Procurement Can And Should Be Improved,"
Report to the Congress by the Comptroller General of the United States, September 15,
1977 (PSAD-77-152), p.4.
The "Report Of The Commission On Government Procurement," Volume 3, pp. 18-21,
Government Printing Office, December 1972.
4 "Government Specifications For Commercial Products?Necessary Or A Wasted
Effort i," report to the Congress by the Comptroller General of the United States, Novem-
ber 3,1977 (PSAD-77-171), p. 2S.
aIbid.. p. 19
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marketplace. 'Further, they hinder effective small business participa-
tion, because it is usually most difficult for a small firm to gather and
understand all the documents referred to in a specification.
SURVEILLANCE
It is important to recognize that current Government surveillance
requirements grew for a reason: to insure control and accountability
in the spending of the Federal dollar. These requirements, however,
should be a supplement to, and not a substitute for effective competi-
tion. The surveillance requirements the Government imposes upon busi-
nesses performing Government contracts have become so inconsistent,
confusing and overlapping that many businesses, especially small ones,
simply do not bother to seek Government contracts. Agencies impose
separate reporting requirements and make differing interpretations of
the reasonableness allowability and allocability of contractor costs
incurred. The absence of a single procurement statute and uniform
audit procedures causes agencies to duplicate and diffuse Government
surveillance efforts, and imposes a heavy regulatory and paperwork
burden on businesses.
The impact of this regulatory burden is felt most keenly by small
businesses, who usually do not have the legal and technical exper-
tise to understand the Governments requirements. Ironically, the
cause for the proliferation of this requirements has been the erosion
of fundamental congressional policy designed to assure accountability
in quality and in price?open, effective competition. This lack of com-
petition has necessitated the creation of elaborate substitute mechan-
isms designed to achieve a price equivalent to one that otherwise would
be obtained through competition.
Therefore, this legislation' while allowing the Government broad ac-
cess to contractor records to insure quality and fair pricing, allows
companies whose business is predominantly competitive and whose
cost-type contracts with the Government are limited to seek a short
term waiver from certain Government management surveillance re-
quirements. A fundamental objective of this bill is to concentrate Gov-
ernment surveillance efforts where they are most needed?on those
companies which operate in a noncompetitive environment.
TIIE FLIGHT OF SMALL BUSINESSES
Since the end of World War II, Congress has recognized that small
business ought to play an important role in supplying Government
needs. Small business participation enhances the Federal contracting
system by improving and broadening the competitive base, providing
innovative technology, lowering costs and performing a vital role in
industrial mobilization. Yet, the current system?with its inconsistent
policies and procedures, excessive paperwork, over-specification in pur-
chase descriptions, duplicative surveillance requirements and insuf-
ficient competition?actually impedes rather than promotes effective
small, business participation. A fundamental objective of this legisla-
tion is to simplify those aspects of today's system which handicap or
prevent a small business from competing for and winning Government
contracts. This objective is accomplished by making structural reforms
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designed to facilitate small business entry and participation in the
Federal purchasing system, and by special initiatives designed to in-
crease the number of contracts awarded to small businesses.
1V. HISTORY AND BACKGROUND OF GOVERNMENT PROCUREMENT
From the time the Second Continental Congress established a Com-
missary General in 1775, Government procurement has commanded
the attention of public officials and private citizens. In many respects,
the system which today spends $84 billion a year for products and serv-
ices faces the same considerations the Commissary General found in
1775: maximize competition, obtain fair prices and assure accounta-
bility of public officials for public transactions. Ironically, the policies
and procedures designed to reach these objectives have usually been
developed in a haphazard manner as patchwork solutions to specific
problems which arose at specific times.
ANTECEDENTS TO THE CURRENT SYSTEM
The most significant developments in procurement policies and pro-
cedures have occurred during and soon after periods of large-scale
military activity. The first law regulating Federal procurement, which
provided that all purchases for the Army be made by the Treasury
Department, was passed by the Second Congress in 1792. In 1861 Con-
gress enacted a law requiring advertising for Government purchases,
except in matters of "public exigency." This law, and earlier less com-
prehensive statutes, established the congressional mandate to maximize
competition and accountability through formal advertising. Except
during periods of war this 1861 statute, amended in 1910, applied to
the military establishment until 1948; to General Services Adminis-
tration designated agencies until 1949; and to other executive agencies
until 1965. The law, known as section 3709 of the Revised Statutes, still
applies to purchasing activities not in the executive branch.
During both World War I and World War IT, the Government
found normal procurement procedures too inflexible to mobilize, co-
ordinate and utilize, the resources necessary for the defense efforts.
In World War I, the War Industries Board, established to controi
wartime resources, products, labor and prices, relaxed or eliminated
many procurement procedures. The end of World War I brought- a
return to formal advertising and peacetime procedures. This period
also marked the Government's first substantial involvement, in the
procurement of technological products from the growing aviation
industry. When formal advertising techniques proved too inflexible
for aircraft procurement programs, the Congress enacted the Air
Corps Act of 1926.6 The Air Corps Act allowed the Government to
stimulate innovation to purchase quality aircraft by establishing air-
craft design competitions and by giving agencies the discavtion to
weigh performance as well as price in contract awards. This was
perhaps the first formal recognition that sealed bid procurement ean-
not always generate effective competition or insure that the Govern-
ment gets the best product at the lowest price.
Post World War I .revelations of excessive wartime profiteering
led to a ban on the cost-plus-a-percentage-of-cost contracting method
6 10 U. S. C. ? 2271-2279 (Chapter 135 of Title 10, United States Code).
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and the prohibition of agreements for contingent fees to curb influence
peddling. The Vinson-Trammel Act of 1034 imposed profit limitations
on contracts for aircraft and naval vessels, and the Renegotiation Law
of 1941 allowed the Government to renegotiate certain contracts to
eliminate excessive profits.
In World War II, the War Production Board, with its extraordi-
nary authority over the Nation's wartime production effort, eliminated
the statutory requirement for formal advertising. In fact, the Board
went so far as to prohibit its use without specific authorization.
POST-WORLD-WAR TT DEVELOPMENTS
The experiences of World War provided the, impetus for the
passage of the Armed Services Procurement Act of 1947. The 1947
act, which applies to the Defense Department and NASA, stated a
preference for formal advertising but authorized the use of negotia-
tions under 17 justifiable exceptions. It generated the Armed Services
Procurement Regulation ( ASPR) which governs military procure-
ment, sets limitations on the use of certain types of contracts, and
underscored the importance of small business participation in Govern-
ment contractin 0%7
The Federal Property and A.dministrative Services Act of 1049
established a statutory basis for the procurement procedures of
civilian agencies. Control of procurement policy and, to a limited ex-
tent, certain procurement operations was conferred upon the General
Services Administration, along with a rather complex set of exemp-
tions for certain agencies and activities.8 In 1959. GSA published the
Federal Procurement Regulations, which set up civilian agency pro-
curement policies and procedures. Because of the limitations on GSA's
authority, these regulations are limited in coverage, and are augmented
by individual agency procurement regulations. -
In the last 3 decades, the growth in the size of procurement, espe-
cially in the Department of Defense, and the acceleration of tech-
nology have required new procurement techniques and complex
contractual and managerial arrangements.
The increased use of negotiations and of cost-type contracts gener-
ated concern over the nature and efficiency of the controls in the
acquisition process. In 1962, the Truth in Negotiations Act (Public
Law 87-653) was passed as an amendment to the Armed Services Pro-
curement Act, to strengthen safeguards and clarify procedures per-
taining to negotiated procurements by the Defense Department. It
required the Department of Defense and NASA to conduct "oral and
written discussions". with all firms "within a competitive range" in
competitive negotiated procurements. In addition, for negotiated con-
tracts greater than $100,000, it required defense contractors to disclose
current, accurate and complete cost or pricing data and allowed for
price reductions if defective data were provided. The use of incentive-
type contracts was emphasized in the Defense Department. Based on
the contractor's accomplishments in cost, performance and schedule,
fixed price or cost-reimbursement type incentive contracts provided
for adjustment of profits or fees up or down. In 1970, Congress sought
to create uniformity in contractor treatment of costs by establishing
7 10 U.S.C. ? 2301-2314 (Chapter 127 of Title 10. United States Code).
841 U.S.C. ? 251-260 (Chapter 4 of the Federal Property and Administrative Services
Act.
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the Cost Accounting Standards Board, which requires defense con-
tractors to account for certain costs in a consistent manner.9
SOCIOECONOMIC GOALS AND THE PROCUREMENT PROCESS
The .depression saw the first concerted Federal attempts to promote
socioeconomic goals through the procurement process. These included
the Davis-Bacon Act, setting minimum wages on Federal construction
contracts; the Walsh Healy Act, upgrading wages and conditions of
employment on Federal supply contracts; the Miller Act, requiring
payment bonds to protect subcontractors and material suppliers on
Federal construction jobs; and the Copeland Act, preventing salary
kickbacks on Federal construction work. Federal procurement of
products made by workshops for the blind was ordered by Congress
in 1938. This was expanded in 1971 to products made by other handi-
capped persons. The Buy American Act, which took effect in 1933, pro-
moted both business and labor interests by giving preference to
domestic sources for Federal purchases.
Since World War II, efforts to use the Federal procurement process
to promote socioeconomic goals has continued in a wide range of areas.
Small business and labor surplus area assistance and preference pro-
grams have been intensified, and the Small Business Administration
was established as a permanent Federal agency in 1955. The labor
standards laws of the 1930's have been extended to employees of service
contractors with regard to wages, fringe benefits, hours, and health
and safety conditions. Equal employment opportunity programs have
been intensified, and enforcement techniques have become. more strin-
gent. The Federal procurement system has been used to further pro-
grams relating to: (1) discrimination against women and the aged;
(2) health and safety regulations; (3) hard core unemployment;
(4) minority enterprises; (5) wage and price controls; (6) distribu-
tion of Federal work; and (7) environmental pollution. This legisla-
tion leaves socioeconomic statutes or programs intact, and instead
focuses on modernizing the acquisition process.
V. HISTORY OF THE LEGISLATION
THE COMMISSION ON GOVERNMENT PROCUREMENT
Until the creation of the Commission on Government Procurement
in 1969, there had been no comprehensive examinations devoted ex-
clusively to the way in which the executive branch acquires products
and services. The Dockery Commission of 1894, and the. First and Sec-
ond Hoover Commissions looked at procurement and made recom-
mendations for improvements in the process. These examinations of
procurement policies and procedures were undertaken in the context
of a general review of the administrative efficiency of the executive
branch. However, by the late 1960s and early 1970's, procurement ex-
penditures had grown to over $50 billion annually. The complexity of
the system, its effectiveness and its economic impact on the Nation led
Congress to pass legislation establishing the Commission on Govern-
Public Law 91-379, 50 U.S.C. App. ? 2168.
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ment Procurement.10 In doing so, the Congress recognized that patch-
work 'solutions to individual problems had created an overly complex
system. Given the size of the system, a mere 2-percent increase in
efficiency could translate into over a $1 billion annual saving.
The Commission a 12 member, bi-partisan body composed 'of repre-
sentatives from both Government and the private sector, was charged
to study the Federal procurement process and to Make recommenda-
tions to improve its efficiency. In early 1973, it delivered its final 4-
volume report recommending 149 changes for the considertion Of the
Congress and the executive branch.
Tfie first congressional step to implement the Commission's recom-
mendations was the enactment of Public Law 93-400, which establish-
ed the Office of Federal Procurement Policy (OFPP) in the Mee of
Management and Budget. The OFPP Act was designed to create a
high revel focal point for leadership in developing and coordinating
executive branch procurement policy. Among other things, the new
office as charged with implementing the Procurement Commission's
many recommendations for reform.
The establishment of OFPP was the first recommendation of the
Procurement Commission. The enactment of a modern consolidated
statutory base is the second major legislative recommendation of the
Procurement Commission.
HISTORY OF S. 1204
S. 1261 builds on legislation introduced by Senator Lawton Chiles
on February 19, 1976 (S. 3005). Although no hearings were held
during ' the 94th Congress, the Senate Subcommittee on Federal
Spending Practices, Efficiency and Open Government received exten-
sive comments from the private sector and the General .Accounting
Office as well as informal written comments from executive agencies
about the proposed legislation. In April of 1977, Senator Chile's,
joined by Senator William Roth, introduced S. 1261, a refined version
of S. 3005 designed to address many of the concerns raised during the
review of S. 3005. Senators Heinz, Packwood, and Riegle joined as
cosponsors shortly thereafter. The subcommittee received comments
.from '25 Government agencies and over 40 interested parties in the
private sector.
HEARINGS
Five days of hearings on S. 1264 were held by the Subcommittee on
Federal Spending Practices and Open Government in July 1977. The
following witnesses appeared before the subcommittee:
Henry M. Jackson, U.S. Senator (D-Washington), former Com-
missioner, Commission on Government Procurement; Lester A. Fettig,
Administrator for Federal Procurement Policy, Office of Manage-
ment and Budget; Prof. Robert Judson, Executive Director, U.S.
Navy Center for Acquisition Research, U.S. Naval Postgraduate
School, former Deputy Director of Studies, Commission on G-overn-
ment Procurement; -Michael J. Timbers, president, Washington
Management Group, former Commissioner, Federal Supply Service.
10 Public Law 91-129,41 U. S.C.A. ? 251 (Supp. 1977)?
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Elmer B. 'Staats, Comptroller General, U.S. General Accounting
Office, Chairman of the Cost Accounting Standards Board, former
member of the Commission on Government Procurement; Mr. Vico E.
Henriques, vice president, Computer Business Equipment Manufac-
turers Association (CBEMA) ; Mr. Herman Director, Chief Econo-
mist, Federal Contracts, National Small Business Association.
Dr. William J. Perry, Director of Defense Research and Engineer-
ing, U.S. Department of Defense; Mr. Roy S. Mitchell, chairman,
Public Contract Law Section, American Bar Association ? Prof.
Harold C. Petrowitz, Washington, School of Law, The American
University; Mr. Earle C. Williams, president, National Council of
Professional Services Firms (NCPSF).
Joel W. Solomon, Administrator, General Services Administration;
Hon. A. Vernon Weaver, Administrator, Small Business Administra-
tion; Mr., M. J. Tashjian, Director, Division of Procurement, Energy
Research and Development Administration; Mr. David Westermann,
president, the Hazeltine Corp., representing the National Security
Industrial Association ( NSIA) .
Dr. Karl G. II.arr, Jr., president, Aerospace Industries Association
(MA) ; Adm. Stuart J. Evans, Assistant Administrator for Pro-
curement, National Aeronautics and Space Administration; David
Packard, chairman of the board, Hewlett-Packard Co., former Dep-
'Ay- Secretary of Defense; Mr. Patrick F. Ca,digan, director, Western
Electronics Manufacturers Association (WEMA) ? Prof. Ralph C.
Nash, National Law Center, the George Washington University.
Statements and written responses to questions from the following
witnesses who had planned to testify were also made a part of the
hearing record: Mr. William C. MeCamant, executive vice president,
National Association of Wholesaler-Distributors (NAWD) ; Mr. Gil-
bert A. 011100, executive partner, Sellers, Conner and Cuneo Law
Firm; Mr. Dennis H. Trosch, Assistant General Counsel, U.S. De-
partment of Defense; Mr. Irving Jaffe, Deputy Assistant Attorney
General, Civil Division, U.S. Department of Justice; Mr. Paul G.
Dembling, General Counsel, U.S. General Accounting Office.
The witnesses focused on major issues raised by the bill: (1), the
nature and use of functional specifications as purchase descriptions;
(2), procedures for the award of noncompetitive, or sole source con-
tracts; (3), the waiver of certain surveillance requirements for con-
tractors who operate in a competitive environment; (4), the use of
unsolicited proposals; and (5), the General Accounting Office's role in
deciding bid protests.
All witnesses supported the basic objectives of the bill and urged its
passage.
Functional specifications
Both Government and private sector witnesses supported the legis-
lation's Stress on functional purchase descriptions. Dr. William Perry,
Director of Defense Research and :Engineering, Office of the Secretary.
U.S. Department of Defense, testifying for the Department of
Defense, noted that DOD's past use of highly detailed specifications
had "the effect of substituting our judgment for industry's ability to
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innovate." Dr. Robert Judson, Executive Director, U.S. Navy Center
for Acquisition Research, Naval Postgraduate School and former
Commission on Government Procurement Deputy Staff Director stated
that functional purchase descriptions meet public accountability con-
cerns in Government procurement by providing a valid purchase
description which is fair to all potential bidders, and by establishing
a clear basis to insure that the product delivered satisfies the Govern-
ment's needs. Michael Timbers, former Commissioner of the Federal
Supply Service, supported the legislative endorsement of functional
purchase descriptions. All witnesses stated, however, that the legisla-
tion needed to provide a measure of flexibility to insure that agency
standardization objectives and logistical support considerations could
be met.
Sole source
S. 1264 as introduced permitted agencies to award noncompetitive
contracts only upon high level agency approval and then only after
issuing a -formal solicitation which elicited one response. Government
agency witnesses were concerned over the requirement for high level
agency approval of all noncompetitive awards. Despite the award of
117.000 sole source contracts in excess of $10,000 in fiscal year 1976, the
Defense Department stated that its current review procedures for sole
source contracts were adequate. Michael Tashjian, testifying for
ERDA, suggested that quarterly reports listing sole source awards be
prepared for high level agency review rather than requiring high level
advance approval in each instance. The American Bar Association
agreed that the agency approval levels for sole source contracts should
be raised, but underscored the difficulty of rigidly setting approval
levels for all the different agencies covered by the bill.
While the objective of requiring an actual market test prior to the
award of solo source contracts was generally supported, witnesses
expressed concern over the paperwork involved in preparing a full-
blown competitive solicitation in each instance. NASA representa-
tives suggested publishing a synopsis of an agency's intent to award
a noncompetitive contract as an alternative method of alerting the
private sector of an agency's requirements. Both NASA and ERDA
witnesses stressed the need to involve procurement officials early in
the acquisition process. Michael Tashjian, Director, Division of Pro-
curement, for ERDA, stated that:
It seems to me that if we allow for a little more advanced participation by the
procurement personnel in the planning process, it would allow us to avoid some
sole-source awards that are determined independently by technical people.
Professor Ralph Nash, of the National Law Center, George Wash-
ington University supported the need for prior market searches but
was concerned over the delays and the unnecessary internal paperwork
which might be required. lie suggested using an alternative procedure,
" * which says that before any agency may initiate sole source pro-
curement, it must publish in the Commerce Business Daily or some
appropriate place, an intent to go sole source, with proper justification,
and then have a waiting period of, say 30 days, where anybody who
felt they had a way to solve that problem or deal with that situation
would come in."
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Surveillance
Section 509 of S. 1264 as introduced allowed contractors to apply for
a waiver from certain Government "management efficiency" require-
ments if 75 percent of a contractors business was conducted competi-
tively. Executive agencies generally supported the provision. Dr.
William Perry, testifying for the Department of Defense stated:
We note, and endorse, the provisions on limiting Govern-
ment surveillance as an ideal example of how, with the assist-
ance of this legislation, we can reduce our regulatory burden
on industry, and still do an efficient and effective procurement
job. We would generally concur with other proponents of this
legislation that there is little to be gained by monitoring a
contractor's total management systems where 75 percent of
that contractor's business activity is subject to the forces of
the competitive marketplace.
Elmer Staats, testifying for the General Accounting Office, op-
posed section 509 in the bill as introduced. While he supported elimi-
nating unnecessary Government regulations, he stated that,
* * * although a contractor's business operation. may consist of
75. percent or more commercial or competitive 'Government
contracts, there is no assurance that the other 25 percent is
being conducted in a manner to protect the Government's
interest.
Industry witnesses supported the provision. Some suggested broad-
ening its application to all segments of a company if one segment met
the competitive test, and the entire company used uniform manage-
ment accounting practices.
Unsolicited proposals
Both Government and industry witnesses criticized the legislation's
omission of procedures dealing with the award of contracts based on
unsolicited proposals. NASA and ERDA representatives contended
that restrictions on the consideration of unsolicited proposals could
hamper their research and development missions, and noted that the
Commission on Government Procurement recommended encouraging
the use of unsolicited proposals. Representatives from the American
Bar Association and the National Security Industrial Association also
supported encouraging the use of unsolicited proposals. The National
Security Industrial Lsociation conceded, however, that there was a
need to establish sufficient procedural safeguards to insure that unso-
licited proposals not be used as a device to award contracts to favored.
companies. ?
Bid protests
Title VII of S. 1264 as introduced, provided a system and procedure
for resolution of bid protests by the General Accounting Office. Paul
G. Demblincr, General Counsel for the General Accounting Office
stated that the Comptroller General has been acting on bid protests for
more than 50 years. He noted that the GAO's authority in this regard
stems from the Budget and Accounting Act, 1921, which places in the
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GAO the responsibility for settlement and adjustment of public ac-
counts. That act also makes GAO's certification of balances of public
accounts final and conclusive on the executive branch. He supported
title VII, with a few modifications, as it largely reflects the GAO's
longstanding procedures and practices in the area of bid protest
resolution.
Irving Jaffee, Deputy Assistant Attorney General, Civil Division,
Department of Justice opposed title VII as an unconstitutional delega-
tion of executive authority. He stated that the proper place for the
resolution of protests is in the executive branch..
Gilbert A. Cuneo, of the law firm Sellers, Conner and Gime?, sup-
ported legislative continuance of GAO's role as a protest resolving
forum. Roy S. Mitchell, testifying on behalf of the American Bar
Association, strongly supported the enactment of title VII with some
modifications to assure "more effective performance of the protest
adjudication function in the public interest. * ""
VI. EXPLANATION OF COMMITTEE ACTION
The committe made several changes in S. 1261, as introduced, in re-
sponse to concerns raised during hearings and comments received.
What follows is a summary of the major committee amendments to
S. 1264.
SMALL AND MINORITY BUSINESSES
A major purpose of S. 1264 as introduced was to aid small businesses
by eliminating structural obstacles in the current system which unduly
inhibit small business participation. This purpose was recognized and
supported both by the Small Business Administrative and by small
business groups during hearings on S. 1264.
The committee felt appropriate however to further spell out its
support for small business participation in Federal procurement and
therefore amended S. 1261 to underscore that support. Section 2 was
expanded to include specific statements of policy designed to guide
agencies in promoting small and minority business participation in
Federal contracting. The policy section, as amended, calls for: Prac-
tices designed to assure Government contracting with small and new
businesses to the maximum extent practicable; the Government to
make procurement information, including applicable laws and regula-
tions, available for review and examination; and the Government to
seek opportunities for minority businesses to grow through Federal
contracts. Section 504, which authorizes multiyear contracting, was
amended to require an agency determination that the use of a multi-
year contract will not inhibit small businesses participation. A new
provision (section 511) was added to require the Government to pay
interest on its overdue bills. While this requirement will benefit all
businesses, it will be particularly helpful to small firms who are often
hamstrung by having to carry overdue Government accounts reeeiv-
the for long periods of time. S. 1264 as amended also calls for periodic
reviews of all agency procurement programs to insure that participa-
tion goals for minority-owned businesses are established and met.
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FUNCTIONAL SPECIFICATIONS
As introduced, S. 1264 did not define the term "functional specifica-
tions". During hearings, concern was raised about the possible vary-
ing interpretations of the term, and the impact they might have on an
agency's ability to define its purchase needs.
Consequently, a definition was developed and included in the legis-
lation, based on language suggested by the major executive branch
procuring agencies. The definition would allow a statement of the
qualitative nature of the product required and the minimum essential
characteristics and standards to which such a product must con-
form if it is to satisfy its intended use.
In addition, S. 1261 was amended to require the OFPP in OMB
to establish and oversee a program to reduce the use of detailed speci-
fications, and require agencies to conduct sunset reviews of all speci-
fications at least every 5 years. The purpose of these changes is to
insure that Government specifications do not become outdated and to
establish a coordinated program to review agency compliance in the
executive branch.
CONDUCT OF COMPETITIVE NEGOTIATIONS
S. 1264 as introduced placed strict limitations on the nature of the
discussions held during competitive negotiated procurements. These
limitations were designed to insure that all competitors were treated
equitably, and to reduce the time and expense associated with pro-
tracted contract negotiatons.
While this intent was generally supported during hearings, the
approach originally set forth was criticized as being too rigid to apply
to all negotiated procurements.
Concern was expressed that S. 1264 as introduced would not only
prohibit inappropriate forms of contract negotiations, but also would,
in certain instances, preclude meaningful contract negotiations.
In response to these comments, section 303 (a) of S. 1264 was
amended to specifically set out those forms of discussions which are
prohibited during contract negotiations. For example, an agency is
prohibited from making multiple requests for best and final offers
I rom firms in competition for a Government contract. It was further
revised to allow detailed negotiations to be held with all competitors
in specified situations where such flexibility is essential.
These revisions maintain the legislation's safeguards against
favoritism in the award of Government contracts, while insuring that
the competitive negotiation process provides a setting for meaningful
discussions.
NONCOMPETITIVE PROCUREMENT
Section 304 of S. 1264 deals with noncompetitive, or sole source pro-
curement. In the bill as introduced, the award of noncompetitive con-
tracts was authorized in three situations: The declaration of a na-
tional emergency, a public exigency situation, or in situations where
only one source capable of performing the work exist. In all other in-
stances, the agency was required to issue a full-blown Request for Pro-
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posals. If only one response were received, then the agency could enter
into a sole-source contract.
During the hearings, concern was raised that this system would
prove too cumbersome and Would generate unnecessary paperwork.
In addition, the committee was also concerned about opportunities for
abuse in situations Where an agency determined in advance that "only
one source" was capable of performing a particular contract.
Section 304 was subsequently amended to eliminate opportunities
for abuse in "only one source" situations and to reduce paperwork. As
amended, S. 1264 requires the, agency to prepare a justification for
proposing each sole-source contract, and then, prior to beginning any
negotiations with ft single offeror, publicize its desire to award a non-
competitive contract for 30 days. During that time, if another firm
comes forward and demonstrates an ability to meet the requirements
of the work, then the contract. must be. awarded competitively. Since the
publication requirement would take the form of a summary of the pro-
posed work, additional paperwork would be minimal. More impor-
tantly, an agency determination to award a sole source contract would
be subject not only to high level internal approval but also to an actual
market test. The approach prevents an agency from substituting its
judgment on .competition for the marketplace's ability to generate
alternative bidders, and insures that Government contracting op-
portunities will be disseminated to a widespread, interested audience..
The committee also revised. S. 1264 to allow for the award of con-
tracts stemming from acceptance of unsolicited proposals. Such pro-
posals, offered by industry on its own initiative- and not in response
to an agency request or communication, allow the Government to bene-
fit from the innovative ideas of the private sector. The committee
agrees with the Commission on Government Procurement recom-
mendation that their use should be encouraged.
CONTRACT AUDITS AND SURVEILLANCE
S. 1264 as introduced allowed contractors who conducted 75 percent
of their business competitively to seek a 2-year waiver from certain
Government management efficiency "surveillance requirements." Con-
cern was raised by the Comptroller General over the nature and scope
of such a waiver. In response to these comments, section 509 of S. 1264
was amended to focus the benefits of this waiver on smaller contractors.
The definition of competitive Government contracts for purposes of
obtaining the waiver was narrowed considerably. In addition, con-
tractors who held more than $10 million in noncompetitive Govern-
ment contracts were precluded from obtaining the waiver, no mat-
ter what percentage of the firm's business is being conducted com-
petitively. Finally, an agency's authority to cancel the waiver at its
discretion was clearly set forth, and the section was revised to ex-
plicitly state that its operation in no way impaired the Comptroller
General's authority to examine contractor records.
Section 806 of S. 1264 establishes both executive agency and the
Comptroller General's authority to examine contractor records. The
committee amendments to this section were designed to bring the au-
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thority in line with current statutory authority, and to broaden the
access to records authority to allow for agency "should cost" examina-
tions of contractorrecords."
Section -305 of S. 1264 expands the coverage of the Truth in Nego-
tiations Act (Public Law 87-653) to all executive agencies. The com-
mittee -amended this section to clarify its intent and to clearly
distinguish between those situations which call for submission of price
data from those which require cost data to be provided.
COMMERCE BUSINESS DAILY
S. 1264 as introduced called for proposed Government pro-
curement actions to be advertised. in accordance with section 8(e) of
the Small Business Act. That section requires impending procurement
actions to be publicized in the Commerce Business Daily, a Govern-
ment publication.
Since a major purpose of this bill is to group all procurement law
together, the committee felt it appropriate to incorporate section 8(e)
of the Small Business Act into S. 1264, as amended. In doing so, the
committee established a uniform dollar threshold for advertising pur-
poses which would be applicable to all Federal agencies.
The committee further eliminated the current exemptions from ad-
vertising requirements for those procurements involving: (1) personal
or professional services, (2) contracts with educational institutions,
(3) offers solicited only from foreign sources, and (4) contracts for
utility services. The elimination of these exemptions is consistent with
the committee's intent to increase competition by widespread dissemi-
nation of Government purchasing needs.
DELEGATION OF AUTHORITY
As introduced, S. 1264 limited the delegation of authority to make
procurement related decisions to a level no lower than the "head of the
procuring activity."
During hearings on the legislation, concern was raised about the
workability of such a statutory restriction, because the term, "head of
procuring authority" was well defined only in the Department of
Defense. Other agencies either had no such position, or differed widely
in their interpretation of the nature of the position.
After careful consideration, the committee rejected the notion of
legislatively pegging the authority to make decisions to a predeter-
mined agency level. The different size of the procurement activities of
agencies covered by S. 1264 would have required setting specific ap-
proval levels for each agency, a cumbersome and overly rigid method
to achieve accountability.
Further, the notion that all decisions, from those related to a $10,000
contract. to those involving a multibillion dollar system acquisition,
should be made only by the agency head or at a uniformly specified
level within an agency was found to be simplistic and unrealistic. In the
10 U.S.C. 2313(b) (c). See also Appendix B of this report, letter to Hon. Lawton Chiles,
Chairman, Subcommittee on Federal Spending Practices and Open Government, Committtee
on Governmental Affairs, U.S. Senate, from Robert F. Keller, Acting Comptroller General of
the United States, October 27, 1977.
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Department of Defense, for instance, the Secretary would be forced
to personally review and approve literally teas ofthousands of actions
each year. Such reviews would become meaningless checkoffs, and
wouldle as ineffective in proteetin6. against -abuse as no reviews at all.
The committee concluded that the key to maintaining accountability
is to assure meaningful review of important decisions. S. 1264 was
consequently amended to require that the authority to make procure-
ment related decisions Should be -maintained at the highest organiza-
tional level practicable in the executive agencies. -
The effect of this provision limits delegating of the authority' to
make decisions pertaining to noncompetitive contract procedures,
waivers of contractor surveillance requirements, and use of , detailed
specifications. The Office of Federal Procurement Policy is required to
establish regulations setting internal agency approval levels; consistent
with the size of the procurement and the. nature of the decision.
Finally, the committee has indicated that OFPP is to comply with
section 8(b) of Public Law 93-400 in issuing regulations pertaining
to the delegation of authority to make determinations. Section 8(h)
requires OFPP to transmit a report concerning the regulation to the
Senate Committee on Governmental Affairs and the House Committee
on Government Operations at least 30 days prior to its effective date.
GENERAL ACCOUNTING OFFICE'S ROLE REGARDING BID PROTESTS
When S. 1264 was first introduced, it was acknowledged that its
provisions with respect to title VII were not immutable, but were
clearly open for discussion and debate As a result of such discussions,
several substantive changes have been made in title VII as reported.
Concern was expressed regarding the binding effect of the, Comp-
troller General's bid protest decisions on the executive agencies in
view of the constitutional separation of powers question. Section 703
(b) as introduced, provided that decisions of the Comptroller Gen-
eral would be binding upon all interested parties. The committee, how-
ever, amended this section to avoid constitutional conflict with the
executive branch. Section 703(b) now provides that the Comptroller
General's decision "shall be issued under (his) authority to settle
accounts of the Government under the Budget and Accounting Act,
1521, as amended." This language maintains the status quo regarding
the authority of the Comptroller General over settlement of accounts
conferred by the Budget and Accounting Act, 1921. The committee did
want to clarify and make explicit the Comptroller General's author-
ity over bid protests implicit in the Budget and Accounting Act, 1921,
as amended.
Another significant change between title VII as introduced and
title VII as reported concerns a provision granting subpena power
to the Comptroller General. Originally, section 703(c) (4) authorized
formal discovery proceedings and the issuance of subpenas.
There was concern about granting this authority because the Comp-
troller General had never possessed such expansive authority before.
The committee decided, after much consideration, to delete this pro-
vision because the need for such authority was not clearly demon-
strated during the hearings.
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Title VII as amended includes a provision for judicial review of
an action, or the failure to act, of an executive agency or of the Comp-
troller General, by an aggrieved person with respect- to a solicitation
or award. The committee found this to be appropriate and necessary
because the GAO procedures do not provide for a trial-type hearing.
Judicial review would help assure agency compliance with the basic
policies of the act.
Other minor changes were made by the committee. Title VII as
reported contains definitions of the terms "protest" and "interested
party." These were included to avoid later interpretive problems. Title
VII as introduced included provisions describing the procedure to be
followed in rendering decisions. The committee deleted these provi-
sions because it believed that such procedural matters should be dealt
with by regulations.
TECHNICAL CHANGES
The committee made a number of technical perfecting amendments
designed to clarify the legislation's intent.
VII. DISCUSSION OF KEY ISSUES
EFFECTIVE COMPETITION
The fundamental objective of this legislation is to establish an ef-
fective procurement system, that is, one which enables the buyer to
elicit and benefit from competition in satisfying each of his purchase
needs. Historically, Congress has relied upon a statutory preference
for a procurement device?competitive sealed bidding?to generate
the competition which should enhance the Government's ability to
make the most Effective, economical purchases. In many instances,
however, sealed bidding forestalls that objective by preventing the
Government from making tradeoffs between price, cost, and perform-
ance in its purchase decisions. S. 1264 is designed to insure that the
Government is able to make economical purchases in all situations by
using that procurement device which most effectively generates
competition.
Competition is not a procurement device, but a phenomenon of the
marketplace. It is not caused by a particular procurement technique
but is rather the objective which a technique should be designed to
attain. Competition results when several sellers, acting independently
and offering alternative products or services, attempt to secure the
business of the buyer by proposing the most attractive contract terms
which best meet the buyer's need. The buyer evaluates different as-
pects of each proposal to determine which proposal best satisfies his
purchase requirements on the most attractive, terms.
There is more than one form of competition. "Price competition"
focuses on the initial purchase price of the item to be acquired : the
bidder offering the lowest initial purchase price wins the contract.
"Total cost competition" considers the entire cost of an item over its
lifetime : for example, maintenance costs and energy consumption
are weighed along with initial purchase price.
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Buying something at the lowest price possible per unit cost is not
necessarily the most prudent way to make a contract award if the
buyer has requirements which extend beyond initial purchase price.
The prudent consumer goes to lowest unit price in low technology
-areas, as does the Government. Both use competition to buy clothes-
pins for example; using the lowest price of what's available in the
marketplace.
In high technology areas, however, both the prudent consumer and
the Government would use different techniques in approaching big
ticket items. A consumer may buy a more expensive refrigerator be-
cause Consumer Reports has determined that it will last longer or
to take advantage of a better service network (i.e., the prudent con-
sumer has adopted life cycle costing as superior in this circumstance
to unit cost criteria.) Or a seamstress may buy a more expensive sew-
ing machine because it will accept a larger variety of accessories
which, as a skilled seamstress, she intends to make use of. (here, she
has made a tradeoff favoring multiple end-use considerations.)
This bill, in essence, permits the Government to use the same com-
mon sense techniques that a prudent consumer uses in fulfilling his
or her marketing chores. It does so by recognizing that the nature
of the product or service will dictate the Government's purchase con-
siderations. The nature of the purchase considerations in turn will
determine what procurement - method will most effectively generate
competition.
Current statutes express a preference for competitive sealed bid-
ding. Negotiated procurement is authorized, but its use is restricted
by procedural requirements that are not related to market considera-
tions, but which instead mandate the existence of a particular condi-
tion (e.g. negotiations are appropriate in the purchase of medicine).
These current requirements are designed to discourage noncompeti-
tive negotiated procurements, but they also serve to make the use of
competitive negotiated procurement techniques unnecessarily difficult.
S. 1264, as amended, recognizes that competitive, negotiations can be
a more effective way to enhance competition in certain types of pur-
chase situations. In doing so, the bill first makes an explicit distinction
between competitive and noncompetitive negotiations. It removes the:
requirement for a written determination prior to using competitive
negotiations. It replaces the current list of specific sealed bidding ex-
emptions with generic criteria describing those marketplace conditions
which dictate the use of sealed bidding, or of competitive negotiations.
Competitive sealed bid procedures are appropriate when the Gov-
ernment's purchase decision is based on price, alone. Awards based
on price alone can usually be, made only when the products or services
to be purchased are well developed and involve few technological.
considerations. For such purchases, sealed bid procedures maximize
competition and assure that, the Government will get the most for its.
money.
The use of competitive sealed bid procedures, in which award is
based on low purchase price alone, rules out the opportunity to con-
sider differences in design or product concept which can lead to impor-
tant trade-offs between price, cost and performance. Such trade-offS
are impossible to make without competitively evaluating all aspects
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of each competitor's proposal; that evaluation process is impossible
without holding discussions with the competitors.
In this regard, the conclusion that competitive negotiation is a valid
procurement technique is one shared by. this committee, the General
Accounting Office and the Commission on Government Procurement."
S. 1264, as amended, further establishes safeguards to prevent op-
portunities for abuse in competitive negotiations, and to insure that
all competitors are treated evenhandledly. These include a requirement
that the Government inform all competitors what its purchase criteria
will be, and the relative importance of each criteria. It requires that
any changes in those criteria or in the purchase requirements be
promptly communicated to all competitors on an equal basis. Finally,
it prohibits certain forms of discussion between the Government and
the competitors in order to insure that the confidentiality of each
offer is protected.
This bill is not intended to reduce the use of competitive sealed bid-
ding, but rather to remove undue restrictions on the use of competitive
negotiations. In fact the bill's mandate for functional purchase de-
scriptions and the use of two step sealed bidding procedures should
increase the use of competitive sealed bidding."
S.1264, as amended, does not remove any safeguards against noncom-
petitive contracts. On the contrary, it requires not only a written
justification, and high level approval for each proposed noncompeti-
tive negotiated procurement, but also forces agencies to publicize their
intention to enter into a noncompetitive contract. If a qualified com-
petitor comes forward in response to this advance notification, then the
proposed contract must be awarded competitively. Thus, a determina-
tion to enter into a noncompetitive contract is subject not only to
internal agency review, but also to challenges from the marketplace
iteself.
FUNCTIONAL SPECIFICATIONS
The term "functional specification" means a statement of a needed
function to be performed by a product or service, of the essential char-
acteristics and standards required, and of the conditions or constraints
surrounding its intended use or application. This legislation encour-
ages the Government to state its purchase requirements functionally,
that is, to describe the problem to be solved rather than predetermining
what specific product will best solve it. A valid functional specification
should accurately reflect the needs of the Government while avoiding
unduly restrictive requirements which tend to limit competition with-
out satisfying a real need.14
" The "Report Of the Commission On Government Procurement," Volume 1, p. 20,
Government Printing Office, December 1972. In June 1968, Elmer Staats, Comptroller
General of the United States, testified before the U.S. Senate Subcommittee on Anti-trust
and Monopoly Legislation on competition in defense procurement, that "Each of these
methods (formal advertising, competitive negotiation, and single source negotiation)
when used in appropriate situations is an acceptable method of procurement." Later as 0
member of the COMMISSiOn on Government Procurement he supported the approval of
recommendation A-3, which called for the authorization of the use of competitive negotia-
tion methods of contracting as an acceptable and efficient alternative to formal advertising.
'3 See page 36 of this report for a more detailed description of two-step sealed bidding.
14 Article by Robert Judson, "The Use of Functional Purchase Descriptions For Adver-
tised Procurements," printed in the Nation-al Contract Management Journal, Volume 11,
No. 1, Summer 1977, pp. 1-13. Arlington, Virginia. This article assesses the use of func-
tional purchase descriptions in sealed bid procurements.
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The Government has long published detailed specifications to con-
trol the products it buys.15 The purposes are worthwhile: shorter prod-
uct lists, simpler logistics, uniform quality, objective competition
based on price alone, and common usage in multiple application.
Thus, it would appear sound at first glance that the Government
should spell out exactly what it wants to buy. However, except in the
case of mating parts, subassemblies and other such constrained prod-
ucts (for which this legislation would allow the use of detailed product
specifications), there are troublesome contradictions with this
rationale.
Probably the worst thing is the formidable bar to innovation erected
by a mandated design. Significant improvements in design concept,
performance, and ownership cost attainable by newer designs and
other imaginative solutions have little chance to be considered.
Second, by being static, detailed specifications always lag behind the
advances continually emerging in other markets.
Third, product specifications which are stretched to cover as many
applications as possible?the driving logic of standardization?may
suit no one use
very well; users may be unable to get products really
needed.
Fourth, competition is sometimes illusory when exactly the same
design is offered by the "competitors"; only a narrow range of price
competition is really possible. In fact a price significantly lower than
others may signal a possible buy-in.
For a great many Government procurements the committee ad-
vocates the use of functional specifications in place of detailed speci-
fications. The advantages expected are these:
?Significant cost saving opportunities are created because a
variety of product solutions may be considered. Detailed specifica-
tions on the other hand, offer little or no latitude for choice of
product, design shortcuts, materials or manufacturing method.
Competitor costs, and prices cannot be very different.
?More firms, especially small businesses, will be likely to compete.
Unlike rigid specifications, functional specifications do not limit
bidders only to those who can build the one pre-specified design.
?Innovation and the play of new technologies will be encouraged,
since specifications would be end use descriptions rather than
product design blueprints. For example, stating a need as
"Rodent elimination" rather than calling for a particular mouse-
trap design could foster some imaginative solution. The "better
moustrap" of -folklore may not be a conventional moustrap at
all if today's sciences and creative design processes- are challenged.
The idea is to confront creativity with a function to be performed
. or a problem to be solved, and to open the door to all valid alter-
native solutions.
?The use of commercially available products will be encouraged,
doing away with the need for suppliers to redesign products
because Government specifications often trail current commer,
cial products even in mature technological fields.
" The Commission on Government Procurement reported over 36,000 government speci-
fications in use in 1972. The Report Of The Commission on Covernmenl Procurement,
Volume 3, p. 19, Government Printing Office, December 1972.
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?Functional specifications are less threatened by obsolescence
since they usually encompass the needs of more customers, and
since they can be continually reused despite changes in technology
which would immediately make product specifications obsolete.
SURVEILLANCE
Surveillance in Government procurement has come to mean those
activities the Government undertakes to assure itself that a contract
price is reasonable, and that the quality of the product or service
meets the standards called for in the contract.
Section 306 of S. 1261, as amended, broadens the current statutory
authority for governmental inspection of a contractor's records to meet
those objectives in a number of ways.
First, it extends the current statutory authority of the, military
services to inspect contractor records to all executive agencies.1G. That
authority is currently broader for military agencies than it is. for
civilian agencies. Second, section 306, as revised based on suggestions
offered by the Comptroller General, would allow inspections to insure
"efficient and economical" contractor performance. These inspections
could include "should cost" studies of a contractor's work on specific
contracts. Finally, this legislation does not alter in any way the Comp-
troller General's current authority to inspect the plants and examine
the books of a contractor.17
The legislation, as amended, does recognize that the uncoordinated
use. of this authority could lead to multiple, duplicative inspections
which would be inefficient and costly to the Government. It therefore
calls for the establ ishment of regulations which streamline agency
inspections by coordinating and consolidating agency requirements and
by placing inspection responsibilities in a designated lead agency.
Section 509 of this legislation allows firms which conduct the pre-
ponderance, of their business under commercial, competitive condi-
tions to receive a limited waiver from certain Government-wide man-
agement-efficiency-type surveillance requirements. The intent of this
provision is to focus reviews on those companies which operate
in a noncompetitive environment. Here, the Government must impose
tight controls to insure contract performance at reasonable, costs.
The, comnuittee felt that such surveillance requirements could he
relieved, however, for firms whose government business primarily
consists of firm fixed-price contracts with price the deciding factor in
the award. Such firms aro forced by competitive forces and the nature,
of their contracts to operate as efficiently as possible. A reduction in
surveillance requirements for such firms provides an incentive to seek
fixed-price contracts. To obtain the waiver at least 75 percent of a firms
business would have, to be competitive,18 and no more than $10 million
of the fi Pins Government contracts could be based on actual or estimated
costs. 17he waiver would be short term and could be canceled at any
t
1010 U.S.C. 2212.
1 USX!. 2313(h) (compare with section 300(b) of this Act). See also 41 U.S.0 254(4))
For purposes of obtaining the waiver set forth in section 509, "competitive" contract
means only firm fixed-price and fixed-price with escalation with price the deciding factor
in the award. See page 54 of this report.
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The requirements of the Truth in Negotiations Act (Public Law 87-
053) are incorporated into this act and extended to all agencies. Public
Law 87-653, which currently applies only to the Department of De-
fense and NASA, requires contractors to provide data which allows
the Government to assure itself of the reasonableness of the agreed
upon contract price. It assists the Government in determining whether
the prices or costs associated with a negotiated contract are fair and
reasonable.
Public Law 87-653 has been an effective tool to determine the reason-
ableness of a negotiated price, but its original distinctions between cost
data, and price data have become blurred. This legislation defines price
data, cost data, and the market conditions which determine when each
should be used. As is the case under current law, neither price data
nor cost data would be required when there is adequate price competi-
tion in the award of a contract or when the price is set by law or
regulation.
Current law also requires that a formal certification he made of the
accuracy, completeness and currency of submitted cost data. This legis-
lation does away with formal certification as a step toward reducing
unnecessary paperwork, and simply allows the Government to adjust
the contract price for any such errors. Consequently, the Govern-
ment's right to recover remains fully protected.
Finally, this legislation in no way affects the authority of congres-
sional committees to investigate a contractor's books and records.
That authority is explicitly set forth in section 131 of the Legislative
Reorganization Act of 1946, which authorizes each standing com-
mittee, including any subcommittee of any such committee, to make
investigation into any matter within its jurisdiction.
BID PROTESTS
Title VII of S. 1264 reflects the current procedures and practices
.iutilized by the General Accounting Office (GAO) in the resolution of
bid protests. A "bid protest" is a, protest or challenge by an interested
narty against the award or proposed award of a contract. If the award
involves a Federal agency whose accounts are subject to settlement by
the GAO, an interested party may protest to the Comptroller General.
The Comptroller General makes a determination regarding the pro-
priety of the award or proposed award under the applicable law and
regulations.
The Comptroller General has been acting on bid protests for more
than 50 years. His involvement in resolving bid protests stems from
the settlement authority under the Budget and Accounting Act, 1921.
Section 71 of title 31 places in the GAO the responsibility for settle-
ment and adjustment of public accounts. Section 74 of title 31 makes
GAO's certification of balances of public accounts final and conclusive
on the executive branch of the Government.
The committee has addressed the question of the binding effect of the
Comptroller General's protest decisions on the executive agencies, in
view of the separation of powers question raised by the Department of
1, 2 ESC ? 190b (a)
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Justice. The bill as introduced provided that decisions of the Comptrol-
ler General would be binding upon all interested parties. The commit-
tee, however, has amended section 703(b) to provide that protest
decisions "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."
The committee wants to make clear that title VII is not meant to
enlarge the authority of the Comptroller General over bid protests
beyond that implicit in his existing authority to settle accounts under
the Budget and Accounting Act, 1921, as amended. In drafting this
provision, however, the committee was also concerned that nothing in
title VII as amended be construed as weakening or questioning the
authority of the Comptroller General over the settlement of accounts.
It should be noted that the Department of Justice has also challenged,
over the years, the Comptroller General's authority over the settlement
of accounts.
The Comptroller General originally became involved in the bid pro-
test area because of the need for advice to those concerned with Govern-
ment procurement, regarding whether particular contract awards
would give rise to payments subject to question in the settlement of
related accounts. Advance rulings by the- Comptroller General state,
in effect, whether a proposed payment will, if made, be approved in
connection with settlement of the related account.
Title VII largely carries out the recommendations of the report of
the Commission on Government Procurement with respect to the res-
olution of bid protests. The Commission report recommended the con-
tinuance of the GAO as an award protest resolving forum.20 While the
Commission did not specifically recommend explicit statutory coverage
for this, the committee is persuaded that title VII is necessary to
strengthen the effectiveness of the GAO in this area and to increase
public confidence in the adequacy of the GAO remedy.
The committee believes that providing effective machinery in the
CAO for the resolution of bid protests should also further the realiza-
tion of the major policies and proposes of S. 1264, as amended. This
self-enforcing mechanism will afford ample opportunity for business
firms whose economic interests would be directly affected to challenge
proposed agency action under the act concerning a solicitation or
award as contrary to law or regulation. The GAO's ruling will assist
the executive agencies in accomplishing the purposes of this act.
The language that the committee has adopted in section 703(h)
maintains the status quo of the authority of the, Comptroller General
over the settlement of accounts conferred by the Budget and Account-
mg Act, 1921. It makes explicit the Comptroller General's 50 years
of reliance on that same authority for issuing protest decisions.
Finally, the committee has found it appropriate to make provision
in section 705 of title VII for judicial review of disputes and protests
over solicitations and awards. The committee believes that persons
adversely _affected by agency action or by protest decisions of the
Comptroller General concerning solicitations or contract awards
should be able to obtain judicial review of those matters in Federal
" The "Report Of The Commission On Government Procurement," Volume 4, pp. 39-4:1,
Government Printing Office, December 1972.
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district courts under the provisions of the Administrative Procedure
Act, 5 U.S.C. ?? 702-706. The primary reason is that the Federal
courts, as well as the Comptroller General, have an important role
in assuring the rule of law in Federal acquisition and. thus in help-
ing to achieve agency compliance with the basic policies of the act.
Providing a judicial remedy for persons adversely affected by
agency or Comptroller General actions will also strengthen public
confidence in the fairness of the acquisition solicitation and award
process. The very knowledge that agency and GAO actions are
subject to court challenge will increase the accountability and respon-
sibility of public officials in their decisionmaking, thereby serving
the public interest. The GAO procedures do not provide for a trial-
type hearing to establish disputed material facts. Thus, section 705
provides for the courts to make determinations to resolve disputed
material facts or when otherwise necessary to comport with basic
due process considerations.
The committee further notes that the provision for judicial review
accords with the report of the Procurement Commission on the need
to clarify the role of the courts in the review of contract award
decisions.21 Such Clarification is necessary in view of the present incon-
sistency of opinions among the judicial circuits concerning the ques-
tion of protestors' standing to sue.
THE DOLE OF THE OFFICE OF FEDERAL PROCUREMENT POLICY
The need for centralized authority over procurement policy was the
first recommendation made by the Commission on Government Pro-
curement in its report of December 1972. The Office of Federal Pro-
curement Policy (OFPP) was established in the Office of Management
and Budget in August, 1974 (see Public Law 93-400; 41 U.S.C. 401
et seq) , and was charged with providing overall direction of executive
branch procurement policy, and establishing a system of coordinated,
and to the extent feasible, uniform procurement regulations.
The creation of OFPP by statute represented an important mile-
stone in the efforts of the Congress to exercise effective oversight of
Federal procurement policy. It centralizes executive branch responsi-
bilities and provides a high-level focal point for procurement policy
directly accountable to the Congress. The Administrator is appointed
by the President with the advice and consent of the Senate and is
specifically tasked with keeping the Congress fully and currently
informed of the major activities of the office.
S. 1264 strengthens those objectives by giving OFPP the responsi-
bility to implement its provisions. The result of the specific assignment
of responsibilities to the Office of Federal Procurement Policy is not
to diminish Congressional authority, but, rather, to centralize execu-
tive branch authority and accountability for carrying out key pro-
visions of the bill. This is in sharp contrast to the previous division of
procurement regulatory responsibilities and authority between the
General Services Administration and the Department of Defense, and
will facilitate congressional oversight. The Office of Federal Procure-
ment Policy will be required to report on all of these assignments in
21 ibid., pp. 45-48.
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its annual report to the Congress required by Public Law 93-400. The
same law requires 30 days notice to the Senate Governmental Affairs
Committee and the House Government Operations Committee in
advance of issuance by the Office of Federal Procurement Policy of
major policies or regulations.
PURCHASES FROM FOREIGN GOVERNMENTS
Defense Department representatives suggested adding a new title
to S. 1264 to cover acquisition from other governments and interim-
tional organizations. Under this proposed"' new title, an executive
agency would be granted the authority to waive all the provisions of
this legislation and of any other provisions of law governing govern-
ment contracting (such as the Buy American Act) to enter into con-
tracts with foreign governments or international organizations. Tinde
the Defense Department proposal, this authority would be exercised
whenever the agency determines that to do so would facilitate the
common defense. Agencies would be required to submit annual reports.
to the Congress on the determinations made each fiscal year.
The committee is sympathetic with the potential need for this type
of authority. As Dr. William Perry, Director, Defense Research and
Engineering stated during his testimony:
The need for this unique authority stems from difficulties
which have been encountered in giving effect to the require-
ments of U.S. procurement statutes applicable to the Depart-
ment of Defense in purchases and contracts with other gov-
ernments and North Atlantic Treaty Organization (NATO)
subsidiary organizations. These difficulties have arisen in the
implementation of co-production arrangements and in the im-
plementation of "offset" agreements in conjunction with the
foreign military sales program.
The committee is compelled to note, however, that neither the De-
fense Department, NASA, OFPP, or any other executive agency sup-
porting this proposal provided the committee with any documented
examples of situations in which these difficulties occurred.
In any case, the committee is of the opinion that the suggested pro
cedures constitute an unduly broad waiver of congressional authority..
Finally the committee feels that this suggested provision, while pro-
cedural in nature, raises important policy considerations pertaining-
to Ni k TO standardization and United States arms purchases from
other. nations. Such questions deserve careful consideration on their
own merits, not only by this committee (with regards to the procedures
themselves) but also by the Committee on Foreign Relations and
Armed Services.
For these, reasons the committee did not include authority for cc-
ouisitirg,s Trona foreign governments or international organizations in
this lop.; option. The committee is willing in the future, however, to ex-
amine Proposals which address the problems encountered in the pur-
chase of Products and services from -foreign governments and inter--
national organizations.
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VIII. SECTION-BY-SECTION ANALYSIS
INTRODUCTORY SECTIONS
Section 1 establishes the short title for the bill as "The Federal Ac-
quisition Act of 1977" and sets forth a table of contents.
Section 2?Dec7aeation of policy.?The intent of this section is to
- provide the basic thinking and thrust behind the legislation and to pro-
vide some definite, yet flexible, guidance for the application and inter-
pretation of the bill's provisions, especially in situations where discre-
tion is permitted or uncertain circumstances arise.
By the same token, however, it is not intended that these statements
of findings and policy, in and of themselves, be interpreted as detailed
requirements or tests of the validity of specific contractual actions for
purposes of contract protests or disputes. At most, it would be expected
that these policy statements would lend to the weight of argument, and
not, by themselves, constitute tests for breach of procedure.
Section 2(a) sets forth the findings of the Congress which declare
that the laws controlling Federal purchasing have become antiquated,
fragmented and needlessly inconsistent, causing inefficiencies and waste
in Federal spending.
The Congress further finds that national productivity rests on a base
of competitive industry applying technological innovation to the pro-
vision of products and services. Federal spending practices which
stimulate competition and new technologies can encourage the Nation's
business community and increase productivity. Therefore, Congress
finds that existing Federal spending laws need to be modernized: and
consolidated into a single statutory base which focuses on effective com-
petition and innovation. These findings are derived from the work of
the Commission on Government Procurement, which itself called for
the creation of a consolidated statutory base for executive branch
purchasing.
Section 2(i)) sets out guidance for the executive branch in the ac-
quisition of products and services.
It should be noted that paragraphs (b) (2) , (4), (5) , (6), (9) ,
and (10) are intended to underscore the importance the legislation at-
taches to increasing effective small, business participation in Federal
contracting. Underlying these provisions is the committee's belief that
small businesses are generally capable of performing the vast majority
of Federal contracts, and should be given the opportunity to compete
for Federal contracts on an equal footing with larger companies. It
calls for the use of judicious acquisition practices designed to insure
Government contracting with new and small businesses to the maxi-
mum extent practicable. Such practices may include, but are not
limited to, limiting eligibility for certain contract awards to small
businesses, breaking out portions of large contracts for small busi-
nesses or actively soliciting small business sources.
Enhanced participation would come not only through initiatives
aimed at specifically increasing the amount, and number of contracts
awarderl to small business concerns, but also by the reform of those
structural aspects of the current system, such as the lack of informa-
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tion regarding contracting opportunities and chronic late payments to
contractors, which penalize small businesses.
Section 2(b) (5) calls for agencies to make information on laws
and regulations pertaining to contracts available for review and exam-
ination. The intent of this provision is to mitigate the barriers to
entry which confront many businesses unfamiliar with the Federal
contracting system. One strategy might be to establish procurement in-
formation centers in local Federal offices or in Federal purchasing
centers. Such centers would contain copies of Federal procurement
regulations, information about potential contracting opportunities,
and explanations in simple English of pertinent procurement require-
ments. The opportunity to do business with the Government is a hol-
low one indeed, if prospective suppliers, especially small firms with
limited resources, are unable to understand the requirements of the
system.
Section 2(b) (7) calls for no large scale production to begin until
the item or equipment to be produced has been proven adequate
through operational testing. In major systems acquisitions, a signifi-
cant portion of the total system cost is incurred during production and
in the operation and maintenance of the acquisition itself. Therefore,
the committee believes that prudence and common sense dictate that
the adequacy of an intended acquisition, and its ability to perform in its
environment, must be established prior to the commitment of large
sums for production.
Section 2(b) (8) calls for providing contractors the opportunity to
earn a profit on Government contracts commensurate with the contri-
bution made to meeting public needs and comparable to profit oppor-
tunities available in other markets with similar risks and skills. It is
not the intent of this provision to require that specified profit levels
be incorporated into each contract. Rather it recognizes that negotiat-
ing practices intended to obtain low initial contract prices often lead
to buy-ins and cost overruns. Such practices act to narrow the competi-
tive base and increase the Government's reliance on firms unwilling
to take risks in other markets by driving many capable firms away from
Federal contracting.
This provision is not intended to reduce risk for firms doing business
with the Government. In fact, this legislation, should increase contrac-
tor risk by reducing the use of cost-type contracts, by increasing com-
petition and by eliminating opportunities for favoritism in the award
of contracts. This policy simply recognizes that profit is the reward
for risk and the basis for future innovation and growth.
Subsection 2(b) (9) calls for the Government to minimize surveil-
lance of contractor operations and to waive any controls not needed
to insure contract performance. The intent of this provision is to give
recognition to the notion that excessive Government regulation is a
burden on the Government, on those who are regulated and ultimately,
on the taxpayer. This provision should not be construed as calling for
the elimination or waiver of essential surveillance controls. hike any
other prudent buyer. the government must assure itself of quality and
of reasonableness of price. While the. emphasis of this section is on
surveillance related to contract performance, there is no intent to
preclude pre- and post-contract reviews or audits of such matters as
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equal opportunity compliance, small .and minority business subcon-
tracting, costs or prices, and other matters essential to the Govern-
ment's interest.
Section 2(b) (11) calls for the Government to rely on and to promote
effective competition so as to insure the availability of competing al-
ternatives and to facilitate the entry of new and small sellers into
the Federal contracting system. Although not amenable to rigid defini-
tion, this particular description of what constitutes "effective competi-
tion" is important in appreciating the thrust of the legislation and the
rationale for many of its provisions. Generally, four components
characterize effective competition:
(1) The information required to respond to a public need is
made available to prospective sellers in a timely fashion.;
(2) The buyer and the seller act independently;
(3) Two or more sellers act independently to respond to a
public need by offering products which best meet that need, re-
gardless of how the need itself was expressed; and
(4) There is no bias or favoritism in the contract award.
Effective competition is not a procurement technique; it is a phe-
nomenon of the marketplace. This legislation does recognize that
even a good procurement system may not be able to generate effective
competition in each instance. For example, it may be impossible to
award a contract for the provision of electricity to any source other
than the local power company.
On the other hand, effective competition is not present simply be-
cause two firms are competing for a contract. Effective competition
is always enhanced by the presence of a large number of qualified
firms willing to compete for a contract. Therefore, the committee is
of the belief that executive agencies should always strive to encourage
a large number of firms to compete for a contract.
Section 3?D efinitions.?Section 3 sets forth a number of definitions.
The term "acquisition" is program oriented; it includes all steps
from establishing the Government's need to contract performance.
This definition is important to understanding the modern context of
procurement: an appreciation that the effectiveness of the buying func-
tion depends heavily on the way in which the Government's require-
ments and needs are initially established. While the definition refers
to acquisition by contract with appropriated funds, the act is intended
to apply in all respects to revolving-type funds which are capitalized
by or reimbursable from appropriated funds. The purchases of non-
appropriated fund activities, such as the Army and Air Force Ex-
change Services, the Navy 'Ships Stores Organization and similar in-
strumentalities of other Federal agencies do not constitute acquisition
for the purpose of this legislation. Nor is this legislation intended to
alter current procedures governing contracts made in implementation
of foreign military sales contracts pursuant to sections 22 and 23 of
the Arms Export Control Act (22 U.S.C. 2762-63).
The definition of "acquisition" is intended to be consistent with the
requirements of Public Law 95-224, the Federal Grant and Coopera-
tive Agreement Act of 1977. The procedures in this bill do not extend
to transactions made by using grant agreements or cooperative agree-
ments, but nothing in this section precludes the use of a procurement
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contract and compliance with the bill's procedures in specific in-
stances where such a practice is deemed appropriate..
The term "executive agency" includes the executive departments,
independent establishments, military departments, the United States
Postal Service, and wholly owned Government corporations.
The judicial and legislative branches including the General Ac-
counting Office are not subject to the provisions of this legislation.
Acquisition activity by these agencies is relatively small, and sub-
jecting them to regulations promulgated by the executive branch
agencies could raise constitutional questions under "the separation of
powers" doctrine.
The U.S. Postal Service is covered, since it continues to receive a
significant portion of its operating expenses from appropriated funds.
The committee recognizes however, that the unique composition and
mission of the Postal Service may generate special problems and calls
for the Office of Federal Procurement Policy to be sensitive to those
concerns.
The legislation exempts the acquisition activities of the Tennessee
Valley Authority and the Bonneville Power Administration from
mandatory compliance with the Act while allowing TVA and BPA
to utilize the provisions of the Act where appropriate. The Committee
recognizes that each of these entities has highly specialized purchasing
needs and each uses appropriated funds for only a small portion of
its acquisition needs. Moreover' TVA and BPA are mandated by
statute to be self-sufficient and to exercise various independent and
broad authorities in carrying out their special regional missions. TVA
and BPA must have the freedom to exercise their business judgment
in individual instances to be able to maintain the efficiency of their
operations.
The term "agency head" refers to the head of an executive agency
as defined above; it includes the Secretaries of the Military Depart-
ments.
The term "contracting officer" applies to any person who, by virtue
of his position or by appointment in accordance with regulations, has
the authority to enter into and administer contracts. It also includes
an authorized agent of the contracting officer acting within the limits
of his authority.
The term "property" includes personal property and leaseholds in
personal property, but excludes real property in being and leaseholds
in real property. The words "in being' following "real property"
are intended to make it clear that the act does cover the acquisition of
such real property as new construction, although it does not cover
land or existing buildings. Nothing in this act is intended to affect
existing authority to prescribe standard lease forms.
The term "total cost" covers all resources consumed in the acquisi-
tion and use of property or services. Although typical cost elements are
called out, the definition intends flexibility in the use of the term:
the primary intent is a good faith effort to quantify the "resources
consumed or to be consumed," a common sense proposition for any
buyer. The specific details of a "total cost" calculation, as used when
appropriate in section 302(b) (1), will vary from case to ease depend-
ing on (1) which factors may or may not be involved, and (2) which
factors are or are not susceptible to sufficiently reliable calculations.
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In circumstances where major elements of total cost can be quanti-
fied?for example, energy consumption?the committee intends that
consideration be given to these costs, even when other elements of total
cost cannot be practically estimated and validated.
The term "functional specification" describes the work to be per-
formed in terms of the end purpose to be accomplished. A functional
specification should not be stated in such terms that it prevents the
Government from considering alternative solutions to its purchase
requirements, nor should it limit effective competition.
Any conditions, limitations, or minimum standards prescribed
should relate only to the external environment and operating condi-
tions under which the goods or services will operate and which must be
accommodated. For instance, a functional specification could properly
incorporate characteristics dealing with functionally nonrestrictive
form, fit and function: screws must fit into holes. Conditions or
limitations which relate to the internal characteristics of the product
or service, design features, performance levels tied to design, or detail
presumed necessary for performance are to be avoided.
For example, a functional specification for an overhead viewgraph
projector may stipulate external conditions (e.g., 120 v. 60 cycle power
supply; dimensional standards for storage and slides; requirements
for projection distance; visibility and readibility). The functional
specification could additionally describe acceptable levels of focus,
brightness, and resolution. It would not, however, restrict performance
of individual components presumed to be within the overhead
projector.
"Brand name or equal" purchase descriptions for readily available
commercial type products are precluded by this provision if their use
excludes consideration of products which are used for the same
function. Such descriptions act to limit effective competition by pre-
cluding the consideration of alternative technological solutions.
The term "unsolicited proposal" means a written offer designed to
obtain a contract to perform a proposed effort. Unsolicited proposals
aro submitted to an agency by an individual or an organization of its
own initiative; they are not responses to agency requests or communi-
cations. The Commission on Government Procurement recognized that
unsolicited proposals are an invaluable tool through which the Gov-
ernment obtains creative ideas from the private sector, and called for
the elimination of restraints which discourage the generation and
acceptance of innovation through unsolicited proposals.22
The committee does not intend the term "agency communication" to
inhibit agencies from disseminating information about their broad
scientific and technological interests. Communications related to
agency purchase requirements are prohibited, however, no matter how
broadly they are stated. Such communications could result in allowing
agencies to award contracts without ever indicating to all potential
competitors what criteria were used to select the winner. Such prac-
tices would be both a flagrant evasion of the need for competition, and
a corruption of the mandate for integrity and evenhandedness in
the award of contracts.
22 The "Report Of The Commission On Government Procurement," Volume 2, pp. 25-26,
Government Printing Office, December 1972.
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Regulations to guide such agency communications developed by
OFPP should discourage the use of "broad statements" of agency
needs when in fact such statements could be a .first portion of a com-
plete agency request for proposal. An agency may not consider as
being "unsolicited" .a proposal which is submitted following agency
communications related to purchase requirements.
Finally, it is the committee's belief that the increased use of func-
tional specifications will in fact reduce the number of unsolicited
proposals. Functional specifications would allow the consideration of
new technological approaches to meeting the Government's need within
the context of competitive acquisition procedures.
TITLE I?ACQUISITION METHODS AND REGULATORY
GUIDANCE
Section 101?Acquisition methods.?Section 101 requires executive
agencies to acquire property or services in accordance with this act by
using one of three methods set forth in the act:
(1) The competitive sealed bids method as provided in title
II; or
(2) The competitive negotiation method, as provided in title
III ; or
(3) The simplified small purchase method, as provided in
title IV.
The committee recognizes that other statutes cover the acquisition
of highly specialized products and services. For example, Public Law
92.-582 sets forth policies governing the acquisition of architectural and
engineering services. S. 1261 is not intended to revise or repeal the
procedures contained in that statute nor should any regulations issued
under the authority of this legislation contravene or be at variance
with the procedures set forth in Public Law 92-582.
Section 101(b) recognizes that these three acquisition methods are
equally valid alternatives when selected in accordance with the criteria
set forth in this legislation, as implemented by the Administrator for
Federal Procurement Policy. Underlying the provisions of this
section is the committee's intent that Federal contracts be awarded
through competitive procedures. Generally, the nature of the product
or the service to be acquired and the circumstances of the acquisition,
when examined against the criteria set forth, will dictate the most
effective acquisition method.
As a practical matter, reflecting the, large number of low dollar value
acquisitions, the.shnplified small -purehase method will probably con-
tinue to be used more than any other method.23 There will be a. signifi-
cant reduction in the award of noncompetitive (sole source) contracts ;
there will be a resulting increase of competitive negotiation and sealed
bid procedures.
It is not the intent of this section that noncompetitive purchasing be
considered an "equally valid" alternative; such purchases are to be
23In fiscal year 1976, the Defense Department made 9.451,904 procurement actions (ex-
cluding intergovernmental actions). Of this number, only 195,645. or approximately 2
percent were actions over $10,000. Of the over 9 million actions under $10,000. 5.881,053
were awarded under the statutory authority of the small purchase exception .(I.e., the
authority in the Armed Services Procurement Act and the Federal Property Act ;to nego-
tiate procurement actions under $10,000). See "Military Prime Contract Awards, Fiscal
Year 1976, Office of the Secretary of Defense," September 27, 1976, p. 53.
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regarded as-exceptions, and should be Used only in accordance with the
procedures set forth in section 304.
Section 102L--Regulatory compliance.?Section 102 (a) -authorizes
and directs the Administrator for Federal Procurement Policy to pro-
mulgate a single, simplified uniform regulation implementing this act
and to establish procedures -for assuring compliance with this act
within 2 years of its enactment. The requirement that the Adminis-
trator "promulgate" a single regulation implementing this act does
not mean that the entire effort must be carried out by OFPP alone.
It is anticipated that, within the .limitations of Public Law 93-400,
OFPP will make use of other agency resources as well as interagency
task forces- and temporary or standing committees. Nor does the re-
quirement -for a "single" regulation preclude issuance of a regulation
in different parts or formats for differing subject matter, such as a
handbook for small purchases or a manual for major systems acquisi-
tions. It is further anticipated that OFPP, in issuing such regulations,.
will comply with section 8 of Public Law 93400, which requires OFPP
to notify congressional committees at least .30 days prior to the issu-
ance of any major policy or regulation.
With regard to those laws which are not repealed by this act, it
would be incumbent on OFPP to adhere to legislative directives con-
tained in such laws in issuing regulations and procedures under this
section and this entire act. The committee recognizes that the issuance
of a new regulation in 2 years is an ambitious goal, but feels that the
goal is attainable.
Section 102(a) (2) requires the Administrator to review procure-
ment regulations on a regular basis and to issue revisions as necessary.
It is expected that the Administrator, in conducting reviews of any
regulation, will 'consider concerns raised by executive agencies, the
private Sector and other interested parties.
Section 102(a) (3) requires the Administrator to conduct periodic
studies to determine the effectiveness of agency compliance with this
act, Such Studies should include, but not be limited to, assessments of
agency efforts (1) To reduce the use of noncompetitive contracting;
(2) to enhance- and promote small business participation; and (3) to
simplify procurement procedures.
Section 102(a) (4) 'requires OFPP to establish and oversee a pro-
gram to reduce agency use of detailed product specifications. Such a
program should focus on the elimination of outdated and duplicative
specifications. The General Accounting Office recently found that the
cost to develop a product specification is 16 times the cost to develop a
purchase description.24 The development of a new detailed specifica-
tion.,
especially for commercial type products, should be specifically
justified on a total cost-benefit basis. Such an analysis should include
not only the cost of developing and using the specification, but all costs
associated, with, for example, special Government-industry coordina-
tion, product storage, the provision of spare parts, and special
inspections. .
24 "Government Specifications For Commercial Products?Necessary Or .14 Wasted Effort?''
Report to the Congress by the Comptroller General of the United States, November 3, 1977
(PSAli-77-111), p. 19.
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'Section 102(b) requires the Administrator for the Office of Federal
Procurement Policy to report to the Congress on his activities under
this section as part of his annual report, as provided for in section 8
of Public Law 93-400. Such a report should include his assessment of
agency implementation of and compliance with this act, and recom-
mendations for revisions in this or any other provision of law pertain-
ing to the acquisition of property or services.
TITLE II?ACQUISITION BY COMPETITIVE SEALED
BIDS
Section 201?Criteria for use.--This section establishes seven pre-
requisites, all of which must be met, if the competitive sealed bids
method is to be used as the method of acquisition.
The criteria established here are far from arbitrary, but are a generic
description of those considerations which must be present in order for
competitive sealed bid procedures to generate competition.
A key prerequisite is the availability of products or services which
will allow the Government to award a. contract, to a successful bidder
selected primarily on the basis of initial purchase price. The require-
ment that suitable products or services "are available" does not mean
that they be "off the shelf" or already manufactured, produced or
otherwise existing and ready for delivery or performance. It simply
precludes products or services which have not been proven or devel-
oped from considera6on in sealed bid procurement.
Contracts awarded under the competitive sealed bidding method are
to be of the firm fixed price type: in exceptional cases, fixed price con-
tracts with economic price adjustments may be used when some flexi-
bility is necessary and feasible. The ability to use competitive sealed
bidding method is to remain the first consideration in eadh individual
purchase situation.
Section 202?Incitation for sealed bids.?Section 202(a) requires
that invitations for sealed bids be publicized in the Commerce Business
Daily after the necessity for the acquisition is established. Such pub-
lication should take place at least 10 days before invitation for bids
are issued, and the synopsis of the proposed acquisition should be suffi-
ciently descriptive to minimize the need for a potential bidder to ob-
tain additional information in order to decide whether to enter the
competition.
Section 202 (a) further states that the time prior to opening the bids
be sufficient to permit effective competition and that the invitation be
accessible to all interested or potential bidders. Determinations of the
time needed to obtain effective competition will be guided by the com-
plexity of the individual acquisition. As a general rule, the committee
is of the opinion that a period of 30 calendar days is a guideline for
the minimum time necessary to permit effective competition. While the
invitation must be made accessible to all interested bidders, this section
provides that eligibility to participate in the bidding may be limited to
concerns eligible to participate in small business set-asides or other
authorized programs. Such programs include but are not limited to,
set-asides for labor surplus areas, for minority businesses, and for
products made by the blind or the handicapped. The reference to set-
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asides here is not to be construed as authority to make such set-asides;
that authority must be made pursuant to the Small Business Act or
other specific authorization. This section simply provides agencies with
the procedural ability to carry out such authorized programs.
The objective of section 202 (a ) is to obtain responsive bids from a
large number of responsible sources in order to increase the probabil-
ity of obtaining the lowest available price. Thus, the use of bidders
lists, the routine solicitation of previous bidders and suppliers, and the
publication of information in newspapers and trade journals should
also be employed, in appropriate cases to elicit a large number of bid-
ders. Finally, agencies should selectively review the extent of competi-
tion obtained using sealed bidding methods and take action where
necessary to increase competition for future acquisitions.
Section 202(b) states that invitations shall include a description of
any factors in addition to price that will be considered in evaluating
bids. Evaluation factors "in addition to price" should be limited to
factors which can readily be measured or evaluated, such as delivery
and transportation costs, or energy consumption. The consideration of
total cost may be used under the competitive sealed bidding method,
provided that evaluation criteria are set forth in the invitations for
bids.
Section 202(c) requires that functional specifications be used in pur-
chase descriptions to the maximum extent practicable consistent with
agency needs. The objective of this provision is to increase effective
competition by permitting a range of distinct products or services to
qualify.
Section 202(d) requires that the use of detailed product specifica-
tions be subject to prior approval by the agency head. The agency head
must approve a written justification which: (1) delineates the circum-
stances which preclude the use of functional specifications, and (2)
requires the use of detailed product specifications in the purchase
description. In general, those descriptions which have the effect of
tying the Government's requirements to an approach based on a
specific design are to be considered as detailed for purposes of this
section, and their use would be subject to prior approval.
The objective of this provision is to afford agencies the ability to
forego the use of functional specifications when circumstances militate
against their use. For instance, the establishment of logistical support
requirements for deployed equipment and the need for component
interchangeability require the military services to standardize certain
product descriptions. In the same way, the provision of spare parts
may require detailed product descriptions. The authority to approve
the use of detailed product specifications may be delegated in accord-
ance with section 601 and may be made for classes of items as well as
for individual acquisitions. Such approvals should be granted only
when the use of a detailed product specification is essential to an
agency objective, recognizing the additional costs incurred in (1) de-
veloping and maintaining the specification, ('2) establishing logistical
support systems, and (3) the limitations such specifications place on
effective competition and innovation. Agencies should periodically
review waivers allowing detailed product specifications to determine
if their continued existence is justified.
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Section 202(e) establishes a two-step sealed bidding method in
which first, the contracting officer requests the submission of un-
priced technical proposals and, second, issues an invitation for sealed
bids limited to those bidders whose technical proposals meet the
standards set forth in the original invitation. This procedure, called
two-step formal advertising, is currently used by the Defense Depart-
ment 25 and other agencies. The objective of this provision is to enable
the. Government to obtain the benefits and protections of competitive
sealed bidding in situations where a variety of distinct products or
services are available to meet the agency need. It allows agencies to
stimulate competition by avoiding the use of unduly restrictive
purchase descriptions.
The first step involves an agency evaluation of each technical pro-
posal and a determination of what proposals meet the standards set
forth in the request. In some cases, bid samples provided by offerors
may prove helpful in making such evaluations; but the inability to
furnish a bid sample need not in itself preclude a bidder from consid-
eration. Invitations for bids are then issued only to those 'bidders whose
technical proposals have been determined to be acceptable. Each bidder
responding to the invitation for bids in step two will do so in accord-
ance with the specifications of his technical proposal as finally ac-
cepted. In order to increase competition for future acquisitions, agen-
cies may find it useful to debrief offerors whose technical proposals
were determined to be unacceptable.
Section 203?Evaluation, award and notifications.?Section 203(a)
requires all bids to be opened publicly at the time and place stated in
the invitation.
Section 203(h) states that contracts shall be awarded to the respon-
sible bidder whose bid conforms to the invitation and is most advan-
tageous to the Government, price and other factors considered. The
question of whether a particular bidder is "responsible" requires sound
business judgment, and involves an evaluation of the bidder's experi-
ence, facilities, technical organization, reputation, financial resources,
and other factors. The procuring agency is best qualified to make
this evaluation, and discrimination is accordingly reserved to the
agency in this matter. In virtually all cases, this will result in an award
to the lowest responsible bidder. However it provides for situations
where the public interest dictates an award to someone other than the
lowest responsible bidder as is true in current law.26 This section
further provides for rejection of all bids when, for cogent and com-
pelling reasons, it is in the Government's best interest to do so. This
represents a tightening of current Statutes which do not provide a clear
stan dard.27
TITLE III?ACQUISITION BY COMPETITIVE
NEGOTIATION
Section 301?Criteria for use.--This section sets forth criteria for
the use of the competitive negotiation method of acquisition. Any oro-
posed purchase greater than the small purchase procedures ceiling
2, "Armed Services Procurement Regulation," October 1, 1975 edition, Section 2, Part 5,
Paragraph 2-501 through 2-50:1.2.
2? Sec, for example. 10 TT.S.C. 2303(c). 'See also Senate Report 80-571, Armed Services
Promirement Act of 1947, July 15. 1947. p. 19.
27 10 U.S.C. 2305(c) ; 41 U.S.C. 253(b).
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which does not meet all of the criteria established for competitive
sealed bidding will be made through competitive negotiations.
Current law requires a written determination to justify a decision
not to use competitive sealed bid procedures.28
While the requirement for written determinations in the case of non-
competitive awards is maintained (see section 301) ,written determina-
tions are not required for the use of competitive negotiations. .
Section 302?Solicitations.?This section establishes certain re-
quirements pertaining to solicitations for offers issued by the Govern-
ment to interested or potential sources in competitive negotiations.
The intent of the section is twofold: (1) to require solicitations to set
forth the Government's requirements and the relative importance of
evaluation factors in a manner which insures equity and promotes ef-
fective competition; and (2) to use functional specifications which al-
low the agency to consider a range of competing alternative solutions
to the Government's need. ?
Subsection (a) (1) requires that solicitations for offers be obtained
from a sufficient number of qualified sources to obtain effective compe-
tition, as recommended by the Commission On Government Procure-
ment.29 In addition to timely notice in the. Commerce Business Daily,
agencies are to aggressively seek out and use other ways to publicize
their needs.
Subsection (b) requires each solicitation to include the .evaluation
methodology and the relative importance of all factors to be used dur-
ing evaluation and for final selection. A primary purpose of this re-
quirement is to insure fair and impartial treatment of all offerors in
the selection .process. The reference to "evaluation methodology" is
mit intended to require printing. in the request for proposals the de-
tailed numerical scoring adopted for internal evaluation discipline to
assure uniformity and objectivity of different members of an evalua-
tion panel. That would permit "gaming" the procurement by the of-
feror. What is intended here is i realistic disclosure of information to
permit Proposers to intelligently judge the relative importance of
significant factors and subfactors and to judge just how important the
agency considers cost and business factors in relation to technical as-
pects.
The committee recognizes that in some instances, sueli as in.the ac-
quisition of research and development, it may be difficult at the outset
to assign precise values to the relative importance of cost, technical and
other factors included in the initial solieitations. In such special in-
stances, solicitations need not initially set forth the evaluation criteria
and their relative importance in a precise methodology but shall, as a
minimum indicate the relative importance of all significant evaluation
factors. Absent such indication, it would be difficUlt ,to insure evalua-
tion and selection in an equitable .manner. Subsection (b) .(2) gives
agencies the authority to adjust the importance of the evaluation cri-
teria, recognizing that agency source selection officials must be able to
exercise discretion in making appropriate tradeoffs among such fac-
tors. Any changes however, must be promptly communieatedin writ=
mg to all competitors.
2810 U.S.C. 2304(a) :41 U.S.C. 22(a).
2' The "Report Of The Commission On Government Procurement," Volume 1, pp. 20-21,
Government Printing Office, December 1972.
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This section further requires agencies to use total cost criteria when
appropriate in evaluating offers where price is a primary or significant
factor. The Defense Department currently uses such criteria in the ac-
quisition of major systems, recognizing that the purchase price is only
one component of the total system cost. The National Bureau of Stand-
ards' Experimental Technology Incentives Program (ETIP) has de-
veloped total cost criteria for the acquisition of commercial-type pro-
ducts such as air conditioners, refrigerators and water heaters."
The committee recognizes that the development of total cost criteria
can be difficult and therefore will not be appropriate for every acquisi-
tion. However, this section is not to be construed as limiting the appli-
cation of total cost criteria solely to major systems acquisitions. Total
cost criteria are appropriate in all acquisitions in which the operating
costs promise to be significant, and where validated data can be ob-
tained at reasonable cost. If total cost cannot be estimated, but major
cost elements are known, they should be weighed in the acquisition
decision. Specific direction in these matters is to be set forth in regula-
tions issued by the Administrator for Federal Procurement Policy, as
guided by the considerations set forth above.
Subsection (c) is designed to promote effective competition by re-
quiring agencies to state their purchase requirements broadly in order
to be able to benefit from a variety of competing alternatives.
When such descriptions have the effect of tying the Government's
requirements to an approach based on a specific design, they are to be
considered as detailed for purposes of this section, and their use would
be subject to prior approval.
Subsection (d) requires an agency, upon identification of inadequa-
cies in a solicitation which cause misunderstandings of the require-
ment of a solicitation, to clarify its intent to all offerors in a timely,
equitable manner.
Subsection (e) recognizes that agencies may encounter situations
which require the use of detailed specifications in a solicitation. Over-
riding considerations of operational interchangeability or the provi-
sion.of spare parts are examples of such instances. The use of detailed
specifications is authorized in such situations, provided the agency head
first approves a written determination to justify such use.
Section 303?Evaluation, award, and notifleation,